The correlation between bonds and stocks is essential information for asset allocation decisions; therefore understanding its macro-economic drivers is very valuable for all investors. Stocks-bonds correlation isn’t stable, as we have experienced in the last 30 years, as the correlation, which was positive until the end of the 1990s, changed sign at the turn of the century. Research paper written by Marcello Pericoli sheds more light on this issue and shows that the correlation is primarily influenced by the uncertainty about inflation and real interest rates as well as by co-movement between inflation, real interest rates and dividend growth.

Author: Pericoli

Title: Macroeconomics Determinants of the Correlation Between Stocks and Bonds

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The low volatility factor is a well-known example of a stock trading strategy that contradicts the classical CAPM model. A lot of researchers are trying to come up with an explanation for driving forces behind the volatility effect. One such popular explanation is the ‘attention-grabbing’ hypothesis – which suggests that low-volatility stocks are ‘boring’ and therefore require a premium relative to ‘glittering’ stocks that receive a lot of investor attention. Research paper written by Blitz, Huisman, Swinkels and van Vliet tests this theory and concludes that ‘attention-grabbing’ hypothesis can't be used to explain outperformance of low volatility stocks.

Related to: #7 – Low Volatility Factor Effect in Stocks

Authors: Blitz, Huisman, Swinkels, van Vliet

Title: Media Attention and the Volatility Effect

Two new strategies have been added:

One new related research paper has been included into existing strategy reviews. And two short free blog posts about interesting related research papers have been published during last few weeks.

Cryptocurrencies are a new asset class, and researchers have just started to understand better fundamental forces which are behind their price action. A new research paper shows that Bitcoin’s price can be modeled by Metcalfe’s Law. Bitcoin (and other cryptocurrencies) are in this characteristic very similar to Facebook as their value depends on the number of active users – network size

Authors: Peterson

Title: Bitcoin Spreads Like a Virus

What are the main insights?

– The profitability and the optimal combination of ranking and holding periods of momentum strategies for a sample of Core and Peripheral European equity markets the profitability vary across markets