Journal of Investment Strategies

Ali Hirsa
Professor, Columbia University & Managing Partner, Sauma Capital LLC

Welcome to the second issue of the fourteenth volume of The Journal of Investment Strategies, which contains three research papers.

In “Navigating investment choices: determinants of corporate investment strategies in Japan’s nonfinancial sector”, the first paper in this issue, Leviticus Mensah, Richard Arhinful, Hayford Asare Obeng and Bright Akwasi Gyamfi examine the determinants of corporate investment strategies – specifically, capital expenditures (CAPEX) and research and development (R&D) – for Japanese nonfinancial firms listed on the Tokyo Stock Exchange from 2006 to 2023, using a DataStream data set. Employing robust econometric methods, including the augmented mean group estimator and the two-step generalized method of moments, the authors find that interest rates have a negative and significant effect on both R&D and CAPEX, while tax rates reduce R&D but increase CAPEX. The total debt and stock price both positively and significantly influence R&D and CAPEX, whereas the current ratio has a negative effect on both. Firm size moderates the impact of interest rates, with a positive effect on R&D and a negative effect on CAPEX. The paper’s findings suggest that firms should manage taxes and interest rates proactively, use debt prudently to fund investment, balance liquidity against growth opportunities, and maintain investor confidence through clear communication and aligned incentives. Given limited prior work on this specific setting, Mensah et al interpret their Japan-specific findings primarily through theory and a broader related literature.

The issue’s second paper, “Technical trading versus buy and hold: a framework using common indicators in the US stock market” by Bolong Cao, introduces a technical trading framework that combines trend-following rules, conditional active trading, stop-loss mechanisms and trading volume indicators with the aim of outperforming buy-and-hold strategies, as illustrated with the SPDR S&P 500 ETF Trust and Invesco QQQ Trust (Series 1) and a large, survivorship-bias-free cross section of US stocks. A cross-sectionally trained machine learning algorithm is used to select stock-specific strategy parameters within this framework. Successful rules maintain sustained equity exposure over long periods, staying close in spirit to buy-and-hold while still adding value, but most of the mechanisms’ outperformance is delivered during extreme market disruptions, such as the 2007–9 global financial crisis and the 2020 Covid-19 shock. The author’s findings highlight the importance of distinguishing ordinary corrections from systemic crashes and avoiding both overtrading in minor pullbacks and failure to use stop-losses in major drawdowns. Volatility measures, such as moving-average gaps and downside price moves, are especially use ful for tuning trading parameters and merit further research, which could include the sequential evaluation of signal reliability to improve the stability and predictive accuracy of Cao’s technical trading models.

In our third and final paper, “The role of Indian equity exchange-traded funds in diversified portfolios: a risk-adjusted performance analysis”, Davinder K. Malhotra and Rahul Singh examine how Indian equity exchange traded funds (ETFs) contribute to global portfolios on a risk-adjusted basis. The topic is timely (India’s ETF assets under management has quintupled since 2018), and the authors take a broad view of performance using Sharpe ratios, Carhart alphas, value-at-risk (VaR) and sub-period analysis. The main takeaway for practitioners is clear: a modest allocation to India raises the global portfolio Sharpe ratio and trims VaR. The paper’s main contributions are threefold: it provides a 2008–23 risk-adjusted performance audit of Indian equity ETFs relative to the Russell 3000 and FTSE All-World ex- US; it quantifies diversification benefits, showing that a one-third India/two-thirds US mix raises the long-run Sharpe from 0.19 to 0.22 and reduces 95% monthly VaR by roughly 40 basis points; and it applies a conditional Carhart model across crisis regimes, confirming that Indian equity ETFs deliver essentially zero alpha.

The editorial board and I extend our sincere gratitude to you, our valued readers, for your unwavering support and interest in our journal. We are delighted to present an expanding collection of practical papers on diverse topics related to modern investment strategies, contributed by both academic and industry experts.