Ms Hemlata ji, you have raised a very important question about the utility of academic recommendations on investment. Let me answer your question with an example. Suppose one researcher conducts a study - Performance of selected mutual fund schemes. Here the researcher examines the Market timing and selectivity skills of fund managers. He will take a reference period for the investigation and will collect and analyse the data. The researcher may conclude that among the sample funds studied, fund A gives highest return followed by Fund B and so on. Similar conclusion about others aspects like, risk, market timing and selectivity. The question arise to what extent one can get benefit of this research. In my opinion the results of the study can be taken as a reference and guide, not a basis for the investment decision. The same may be true in future or the future results may be all together different because the investment environment is dynamic. The market efficiency differs from market to market. The flow of new information may be supporting the efficient market hypothesis. The present market trend, company performance, industry performance, economic factors etc. may change over the time. Quality and quantity of information along with the model quality, software and technology are the other factors which influence the quality of research outcomes. In nutshell, investor should never base the investment decisions solely on research outcomes rather intuition, patience, portfolio strategy, technical analysis, fundamental analysis etc. all factors should become the basis. Philosophy of successful investors like Warren Buffet must be given due importance.

Dear Hemlata,

Very good question. Although it is not my specific area of research, I believe that you are right in questioning this!

In my country (Brazil - B of BRICS) I´ve worked as a financial advisor for some years and I would say that the most important issue, regarding reading research works about investments is 'knowing something more about the market behavior'.

And I´d like to say that I totally agree with what Dr. Bhag Singh Bodla said above.

All my best wishes.

Prof. Hess

I fully support the key phrase of Dr. Bhag Singh Bodla:

"investment investor should never base the investment decisions solely on research outcomes rather intuition, patience, portfolio strategy, technical analysis, fundamental analysis, etc. all factors should become the basis".

 I want to cite a phrase from "Donald Norman: Designing For People" (http://www.jnd.org/dn.mss/the_research-practice_gap_1.html):

"There is an immense gap between research and practice." I'm tempted to paraphrase Kipling and say "Oh, the research is research, and practice is practice, and never the twain shall meet".

Have a look at the discussions

https://www.researchgate.net/post/Do_we_need_to_strike_the_balance_between_the_theorists_and_the_practitioners

https://www.researchgate.net/post/Why_dont_developers_use_the_best_research_on_software_development

It is necessary to understand one thing well: the overwhelming number of scientific publications is being done more for the purpose of career growth than with the goal of contributing to science. Investors understand this fact very well and therefore are very skeptical about these publications. Here we need a really big "intuition, patience, portfolio strategy, technical analysis, fundamental analysis etc" in order to not to miss a good idea that could bring real benefits to society and companies that will finance projects.

Thank you all for these detailed answers - great reasoning & explanations. It was nice to discuss this subject with you all.

I agree with Bodla Sir when he says that investment research is based on data of a limited market or time-period & is based on past data, which may or may not be an indicator of future performance. Hence, research results must be used only as a guide.

Infact, Prof. Hess summed it up so nicely when he says the most important thing about reading research works about investments is 'knowing something more about the market behavior'. So true.

Also, very interesting comments from Prof. Fedulov - "There is an immense gap between research and practice." and " the overwhelming number of scientific publications is being done more for the purpose of career growth than with the goal of contributing to science. "

Then, isn't it important that academic investment research concentrate more on improving the quality of the research so that it is more implementable in real-life, to regain its respect among practitioners & common people rather than the skepticism or indifference it receives. Should there be a focus on generating research that can be used rather than just number of research papers?

Best,

Hemlata.