Hi there! This week’s research recap brings you the top investing insights from the past seven days, complete with direct links to the full sources.
Commodities
News Sentiment and Commodity Futures Investing (Yeguang, El-Jahel, and Vu)
Media news sentiment is a priced factor in commodity futures. A weekly long–short strategy, buying commodities with the most positive sentiment and shorting those with the most negative, delivers an 8.3% annualized return with a Sharpe ratio of 0.45, after costs. The premium remains significant after controlling for standard factors, and double-sorting with basis or skewness lifts Sharpe ratios to about 0.75. News sentiment thus provides a distinct and powerful overlay to traditional factor strategies.
Crypto
Valuing MicroStrategy (Andrade, Coomes, and Duarte)
This paper develops a structural model to explain why MicroStrategy’s equity often trades above its Bitcoin holdings. In hype periods, the firm can issue overpriced debt with weak covenants, up to 20% above fair value, and use proceeds to buy Bitcoin at market prices. The model shows this “financing franchise” can lift the equity-to-assets ratio to 2.35 (vs. 1.7 observed in 2025). Key takeaway: Investor appetite for risky debt inflates equity value, but the premium disappears once the hype fades.
Equities
When Tweets Beat Portfolios (Kazempour)
Investment advisors’ portfolios underperform, yet their tweets forecast stock returns. An analysis of nearly 100k advisor tweets shows that sentiment, scored with ChatGPT, predicts abnormal returns over the next five days. A tweet-based long–short strategy delivers 3–4% quarterly alpha, versus –0.24% for advisors’ actual holdings. After accounting for trading frictions, alpha is reduced but still positive in some specifications, with predictive power stronger post-2018. Overall, advisor sentiment provides a possible tradable short-term signal, despite weak portfolio performance.
Conflicting News and Predictable Returns (Chen, Chen, Kumar, and Zhang)
The authors analyze millions of RavenPack news items and show that when headline and body news sentiment conflict, investors overweight the negative side, even when positive sentiment is equally strong. Conflicting news drives about 40 bps abnormal returns on the same day, with effects lasting four days. A long–short strategy earns annualized alphas of 30% equal-weighted and 13% value-weighted, pre-costs. Hence, bad news reliably overwhelms good news.
Embedded Leverage and the Beta Anomaly (Owen, Simin, and Sonmez-Leopold)
The paper revisits the beta anomaly, where high-beta stocks underperform on a risk-adjusted basis, motivating the well-known Betting Against Beta (BAB) factor. The authors show that adjusting betas for leverage, growth opportunities, and default risk removes the anomaly. In double sorts, low-leverage, high-beta stocks underperform, while high-beta, high-leverage stocks deliver strong alphas. A long–short spread within the high-leverage group earns 30% larger alphas than BAB.
Exploiting Myopia: The Returns to Long-Term Investing (Jain and Jiao)
Firms with long-term institutional ownership, measured by how long on average active institutions stay invested, earn about 20 bps per month (2.4% annually), with spreads up to 50 bps and alphas above 60 bps in volatile or recent-loser stocks. The effect strengthened after the 2004 SEC shift to quarterly fund disclosures, which increased short-termism. In short, patient investors profit when myopic institutions exit a stock too soon.
Volatility Decay and Arbitrage in Leveraged ETFs: Evidence from the US and Japan (Lin, Lin, Wang, Yeh)
This paper shows that volatility decay in leveraged ETFs can be systematically harvested through hedged shorts. Beta-neutral strategies across 13 US and Japanese index–leverage pairs earn 2.4–6.2% annually, with Sharpe ratios up to 2.1, positive skewness, and drawdowns below 16%. Results are reported before borrowing costs. A return decomposition shows profits come primarily from shorting US bull LETFs and Japanese bear LETFs.
Options
Commodity Option Return Predictability (Aka, Gagnon, and Power)
Delta-hedged commodity option returns are predictable using 103 variables across seven markets. Option characteristics, especially implied volatility, are most influential, while macro factors like currency returns add further value. Nonlinear models, notably Random Forests and ensembles, deliver the best out-of-sample R² (4–7%). Long–short strategies based on these forecasts remain profitable after costs, with Sharpe ratios above 1. Hence, machine learning seems able to extract durable and tradable signals from commodity option markets.
Post-FOMC Drift in the Equity Options Market (Zhang, Kappou, and Urquhart)
The paper uncovers a clear post-FOMC drift in equity options. Analyzing S&P 500 straddles from 1996–2023, it shows that straddles earn +1.45% on the day after FOMC (t = 2.7). The effect is robust across subsamples but disappears once accounting for investor disagreement or jumps from monetary surprises. Key lesson: Profits from holding straddles post-FOMC come less from vol-crush timing and more from belief dispersion and jumps that unfold the next day.
A Rigorous Exploration of the Black-Scholes-Merton Model: Quantitative Finance Fundamentals (Ravindran Lakshmi)
This paper provides a rigorous, educational walkthrough of the Black-Scholes-Merton model. It derives option pricing from first principles leading, to the Black-Scholes PDE and its closed-form solution. Moreover, the author illustrates sensitivities via Greeks, numerical methods, and extensions like stochastic volatility and jump-diffusion.
Blogs
Macro trading factors: dimension reduction and statistical learning (Macrosynergy)
Newton's Gold Standard (Eric Falkenstein)
Tactical Allocation and Market Regimes (QuantSeeker)
Medium
Measuring Volatility Mean-Reversion (Velasquez)
Automating Portfolio Hedging (Velasquez)
Podcasts
The Gamer’s Edge: High-Win Scalping in Pre-Market Madness · Mario Dimitroff (Chat with Traders)
Antti Ilmanen - Understanding Return Expectations (Flirting with Models)
Rob Arnott: Rethinking Risk, Fear, and the Future of Asset Pricing (Enterprising Investor)
Trial and Error (Risk of Ruin)
Social Media / Industry Research
Exploring Capital Efficiency (AQR)
Reinventing Cap-Weighted Indexing (Research Affiliates)
Intelligent Concentration: A Synopsis of Warren Buffett and Diversification (Alpha Architect)
Last Week’s Most Popular Links
Forest through the Trees: Building Cross-Sections of Stock Returns (Bryzgalova, Pelger, and Zhu)
Revaluation Alpha (Arnott, Ehsani, Harvey, and Shakernia)
PCA analysis of Futures returns for fun and profit, part deux (Rob Carver)
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