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Academic Finance Articles for Traders and Investorson the Predictability of Stock Returns

These academic finance articles are useful to traders and investors because they question the efficient market and random walk hypotheses and whether there is value in technical analylsis or statistical trading strategies. Some give insights into designing better trading systems.

In comparison to articles on technical analysis, which rarely subject their assertions to statistical testing, these finance articles use more rigorous logic, make more valid statistical comparisons, and use higher standards for evaluating statistical evidence. For balance, we include some classic articles on asset pricing and market efficiency and a critique of the behavioral finance and "anomalies" literature by Eugene Fama.

Predictability of Returns, Technical Analysis, and Trading Strategies


Market Statistics and Technical Analysis: The Role of Volume
Lawrence Bloom, David Easley, Maureen O'Hara
Journal of Finance. Volume 49, Issue 1, (1994), 153-181.

On the Relationship Between the Conditional Mean and Volatility of Stock Returns: A Latent VAR Approach
Michael W. Brandt and Qiang Kang
NBER Working Paper #9056.. (July 2002).

On Technical Analysis
David P. Brown, Robert H. Jennings
Review of Financial Studies. Volume 2, Issue 4, (1989), 527-551.

Momentum Strategies
Louis K.C. Chan, Narasimhan Jegadeesh, Josef Lakonishok
Journal of Finance. Volume 51, Issue 5, (1996), 1681-1713.

Financial Asset Returns, Direction-of-Change Forecasting, and Volatility Dynamics
Peter Christoffersen and Francis X. Diebold
NBER Working Paper #10009. (October 2003).

An Anatomy of Trading Strategies
Jennifer Conrad and Gautam Kaul
Review of Financial Studies. Volume 11, Issue 3 (Autumn 1998), 489-519.

Filter Rules Based on Price and Volume in Individual Security Overreaction
Michael Cooper
Review of Financial Studies. Volume 12, Issue 4 (1999), 901-935.

Can Individual Investors Beat the Market?
Josha D. Coval, David A. Hirshleifer, and Tyler G. Shumway
Harvard Negotiation, Organizations and Markets Research Paper No. 02-45.
Available at the Financial Economics Network.

On the Predictability of Stock Market Returns: Evidence From Industry-Rotation Strategies
Robert R. Grauer
Working Paper, Simon Fraser University - Available for download. (October 2000).

Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior
Mark Grinblatt, Sheridan Titman, Russ Wermers
The American Economic Review. Volume 85, Issue 5 (December 1995), 1088-1105.

On Market Timing and Investment Performance. II. Statistical Procedures for Evaluating Forecasting Skills
Roy D. Henriksson and Robert C. Merton
Journal of Business. Volume 54, Issue 4 (Oct. 1981), 513-533.

Over-Reaction, Delayed Reaction, and Contrarian Profits
Narasimhan Jegadeesh, Sheridan Titman
Review of Financial Studies. Volume 8, Issue 4, (1995), 973-993.

Measuring the Predictable Variation in Stock and Bond Returns
Chris Kirby
Review of Financial Studies. Volume 10, Issue 3 (Autumn, 1997), 579-630.

Estimating the Profits from Trading Strategies
Peter J. Knex, Mark J. Ready
Review of Financial Studies. Volume 9, Issue 4 (Winter, 1996), 1121-1163.

On Market Timing and Investment Performance. I. An Equilibrium Theory of Value for Market Forecasts
Robert C. Merton
Journal of Business.

Naive Trading Rules in Financial Markets and Weiner-Kolmogorov Prediction Theory: A Study of `Technical Analysis'
Sahil Neftch
Journal of Business. Volume 64, Issue 4, (1991), 549-571.

The Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT)


An Empirical Investigation of the Arbitrage Pricing Theory
Richard Roll and Stephen A. Ross
Journal of Finance. Volume 35, Issue 5 (December 1980), 1073-1103.

The Current State of the Capital Asset Pricing Model (CAPM)
Stephen A. Ross
Journal of Finance. Volume 33, Issue 3. (June 1978), 885-901.

Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk
William F. Sharpe
Journal of Finance. Volume 19, Issue 3 (September 1964), 425-442.

On Market Efficiency - Behavioral Finance


Yes, Discounts on Closed-End Funds Are a Sentiment Index
Navin Chopra, Charles M.C. Lee, Andrei Shleifer, Richard H. Thaler
Journal of Finance. Volume 48, Issue 2 (June 1993), 801-808.

Market Efficiency, Long-Term Returns, and Behavioral Finance
Eugene F. Fama
Working Paper - Available at the Financial Economics Network.

Good News for Value Stocks: Further Evidence on Market Efficiency
Rafael La Porta, Josef Lakonishok, Andrei Shleifer, Robert Vishny
Journal of Finance. Volume 52, Issue 2 (June 1997), 859-874.

Investor Sentiment and the Closed-End Fund Puzzle
Charles M.C. Lee, Andrei Shleifer, and Richard H. Thaler
Journal of Finance. Volume 46, Issue 1 (March 1991), 75-109.

Contrarian Investment, Extrapolation, and Risk
Josef Loakonishok, Andrei Shleifer, and Robert W. Vishny
Journal of Finance. Volume 49, Issue 5 (December 1994), 1541-1578.

The Limits of Arbitrage
Andrei Shleifer and Robert W. Vishny
Journal of Finance. Volume 52, Issue 1 (March 1997), 35-55.