Papers since 1994

Smith, Gary (2025), Deep-Six the 60/40 Rule, Journal of Personal Finance, forthcoming. Many financial advisors recommend a 60/40 stock/bond portfolio allocation. However, the 60/40 rule and similar strategies sacrifice long-run returns in order to reduce short-run risks that should not matter to many investors. A heavier investment in stocks during a lengthy saving period is likely to substantially increase the amount of accumulated wealth available for spending. During the subsequent spending period, too, a 60/40 investment strategy, whether combined with a constant withdrawal rate or a more flexible endowment spending rule, is likely to underperform an investment strategy that is more highly invested—even fully invested—in stocks.

Smith, Gary (2025), Money and Inflation: A Case Study of the Value of Transparency, Journal of Post Keynesian Economics, 48(1), 1– 11. Steve Hanke recently reported that there is “a tight linkage between changes in the money supply (M2) and inflation.” That paper illustrates clearly why journals should require authors to make all of their data and methods publicly available before their papers are published—indeed, before their papers are sent out for review.

Wyatt, Sam; Smith, Gary (2025), The Disappointing Performance of AI-Powered Funds, Journal of Investing, forthcoming. Artificial intelligence (AI) algorithms are now involved in approximately 70% of all U.S. stock market trades, with about half of that amount high-frequency trading. Few individual investors have the resources to rely on complex AI systems for their stock market trades but they can invest in ETFs and mutual funds that do. We investigate whether publicly available ETFs and mutual funds do, in fact, outperform a simple strategy of buying and holding the S&P 500.

Smith, Gary (2025), Imprudent Prudence: Endowment Risk-Managers Don’t Need to Sacrifice Returns, Journal of Investing, forthcoming. Endowment managers are tasked with supporting their institution’s current and future spending. An understandable preference for spending stability leads many to choose endowment portfolios that sacrifice long-run growth for short-run market-value stability. A combination of stabilizing distribution rules and larger investments in publicly traded stocks (and less in bonds and alternative assets) may boost endowment returns substantially, while also increasing the level and reducing the volatility of annual withdrawals.

Smith, Gary (2024), Big Data and the Assault on Science, International Higher Education, 120. The scientific revolution has been fueled by using data to test theories, so it might be assumed that Big Data has now created a golden age for science. If anything, the opposite is true. Big Data and powerful computers have inflamed the replication crisis that is undermining the credibility of scientists and scientific research.

Smith, Gary (2024), MPT and CAPM Mismeasure Risk, Journal of Investing, 33(4), 40-54. Mean-variance analysis and the capital asset pricing model provide many useful insights for investors who want to measure and manage risk. However, their focus on short-term returns is of limited use and potentially misleading for investors with long horizons. A value investing approach suggests that risk might be better measured by long-run uncertainty about asset income than by short-run uncertainty about asset prices.

Smith, Gary (2024), LLMs Can't Be Trusted for Financial Advice, Journal of Financial Planning, 37(5), 64-75. ChatGPT and other large language models (LLMs) do not understand the text they input and output. When three prominent LLMs were tested with 11 financial-decision prompts, the LLM responses were seemingly authoritative but riddled with arithmetic and critical-thinking mistakes. Financial planners are unlikely to be replaced by LLMs anytime soon.

Smith, Gary; Smith, Margaret (2024), It May be a Mistake to Delay Social Security Benefits, Journal of Financial Planning, 37(2), 56-62. Financial planners generally recommend delaying the start of Social Security retirement benefits until age 70. However, two-thirds of recipients begin collecting benefits before full retirement age. We argue that starting benefits before age 70, or even before full retirement age, and investing these benefits sensibly may well be a smart financial decision.

Young, Deborah Rohm; Sallis, James F; Baecker, Aileen; Cohen, Deborah A; Nau, Claudia L.; Smith, Gary N.; and Sallis, Robert E. (2023), Associations of Physical Inactivity and COVID-19 Outcomes Among Subgroups, American Journal of Preventative Medicine, 64(4), 492-502.  Selected as the AJPM paper of the year. This paper reports additional evidence that regular physical exercise prior to COVID infection substantially reduces the chances of hospitalization, admission to intensive care units, and death.

Smith, Gary (2022), Complex IRRs Do Not Resolve the NPV-IRR “Debate”. A net present value equation with n time periods has n internal rates of return, some of which may be complex numbers. Despite claims to the contrary, these complex numbers are not economically meaningful and do not alter the fundamental fact that an IRR criterion is flawed.

Smith, Gary (2022), Full Moons and Forking Paths, Significance, 19(4), 32-35. The claim that fatal motorcycle accidents are more likely when there is a full moon is a compelling example of what Gelman and Loken call a “garden of forking paths”. Under a variety of assumptions, the number of accidents and fatalities on full-moon nights is not unusually large at all.

Jung, James; Smith, Gary (2022) Earthquakes and Home Prices: The Napa and Ridgecrest Quakes, Journal of Housing Research. , 31(1), 74-87.A comparison of residential home sales six months before and after the 2014 South Napa and 2019 Ridgecreast earthquake sequences shows that prices dropped substantially, and that the effects on individual home prices were directly related to the intensity with which the earthquakes were felt at the location of each home.

Smith, Gary (2021/2022), The Promise and Peril of the Data Deluge for Historians, Journal of Cognitive Historiography, 6 (1-2), 277-287. Historical analyses are inevitably based on data—documents, fossils, drawings, oral traditions, artifacts, and more. Recently, historians have been urged to embrace the data deluge and teams are now systematically assembling large digital collections of historical data that can be used for rigorous statistical analysis. The promise of large, widely accessible databases is the opportunity for rigorous statistical testing of plausible historical models. The peril is the temptation to ransack these databases for heretofore unknown statistical patterns. Statisticians bearing algorithms are a poor substitute for expertise.

Sen, Ananya; Smith, Gary; Van Note, Claire (2021), Statistical Significance Versus Practical Importance in Information Systems Research, Journal of Information Technology. It has been reported that many empirical papers published in prestigious journals in economics, psychology, and medicine prioritize statistical significance over practical importance. We investigate whether the same is true of articles published in the MIS Quarterly, a top-tier information systems journal. We find that 78% of the 306 papers published during the 10-year period, 2010-2019,  used statistical significance alone to judge the success of their models.

Sallis, Robert; Young, Deborah Rohm; Tartof, Sara Y; Sallis, James; Sall, Jeevan; Li, Qiaowu; Smith, Gary; Cohen, Deborah. (2021). Physical inactivity is associated with a higher risk for severe COVID-19 outcomes: a study in 48 440 adult patients, British Journal of Sports Medicine. A statistical analysis of 48,440 Kaiser Permanente patients who had been infected with COVID-19 considered their physical activity level during the two-year period prior to their infection. The US Physical Activity Guidelines recommend an average of 150 minutes a week of moderate to vigorous physical activity (like a brisk walk). That’s just a 30-minute walk five days a week, yet only 6.4% of these patients met this guideline prior to their infection. An astonishing 14.4% reported 0 to 10 minutes a week of moderate to vigorous physical activity! Most of these consistently inactive patients had no exercise at all. We found that, controlling for dozens of possible confounding factors, the patients who met the physical activity guidelines were far less likely to be hospitalized, admitted to intensive care units, or die. Physical inactivity was a larger risk factor for death than were cardiovascular disease, diabetes, and other chronic diseases—and physical inactivity is something we have control over. 

Smith, Gary (2020). The Paradox of Big Data, Springer Nature: Applied Sciences, 2020, 2 (1041). The data deluge seemingly makes it more likely that data mining will discover new, heretofore unknown relationships. Monte Carlo simulations demonstrate the paradox of big data: the data deluge makes it more likely that the patterns and relationships discovered by data mining are spurious. Models are more likely to be reliable if expert opinion is used in their specification, instead of viewing human expertise as an unhelpful constraint on knowledge discovery.  

Smith, Gary (2020). Data Mining Fool's Gold, Journal of Information Technology, 2020. The scientific method is based on the rigorous testing of falsifiable conjectures. Data mining, in contrast, puts data before theory by searching for statistical patterns without being constrained by pre-specified hypotheses. Artificial intelligence and machine learning systems, for example, often rely on data-mining algorithms to construct models with little or no human guidance. While data mining sometimes discovers useful relationships, the data deluge has caused the number of possible patterns that can be spotted relative to the number that are genuinely useful to grow exponentially—which means that the more data that are mined, the more likely it is that what is found will be fool’s gold.  

Liang, Wesley; Smith, Gary (2020). The Chinese Real Estate Bubble, Real Estate Finance, 2020, 36(4). 239-247. Following the 2008 financial crisis, observers began worrying that the Chinese real estate market had been gripped by a speculative bubble. We use residential rent and price data to assess whether these fears are justified. We conclude that residential real estate markets are bubbly in Beijing and Shanghai, with the Beijing housing market frothier than the Shanghai market. 

Baer, Naomi; Barry, Erica; Smith, Gary (2020).The Name Game: The Importance of Resourcefulness, Ruses, and Recall in Stock Ticker Symbols, Quarterly Review of Economics and Finance, 76 (1), 410-413. Previous research reported that a portfolio of stocks with clever ticker symbols outperformed the overall market by a significant margin during the years 1984 to 2005. This paper reports the performance of those stocks during the subsequent years 2006 to 2018, and also investigates the 2006-2018 performance of a new set of clever-ticker stocks. Both clever-ticker portfolios beat the market by a substantial margin, supporting the resiliency of the clever-ticker phenomenon.  

Smith, Gary (2019). Be Wary of Black Box Trading Algorithms, Journal of Investing, 28 (5) 7-15. Black-box algorithms now account for nearly a third of all U. S. stock trades. It is a mistake to think that these algorithms possess superhuman intelligence. In reality, computers do not have the common sense and wisdom that humans have accumulated by living. Trading algorithms are particularly dangerous because they are so efficient at discovering statistical patterns—but so utterly useless in judging whether the discovered patterns are meaningful.   

Smith, Gary (2019), Stock Splits: A Re-Evaluation, Journal of Investing, 28 (4) 21-29. Past studies have been inconclusive about whether stock splits enhance shareholder returns and whether the effects, if any, are due to affordability or signaling. Using fresh data, I find positive effects on shareholder returns, but not because splits make stocks more affordable. The more compelling argument is that corporate stock splits signal a board’s confidence in their company’s prospects. For ETFs and other funds, there is little evidence that shareholders benefit from splits or are more attracted to funds after they split.  

Artigue, Heidi Margaret; Smith, Gary (2019). The Principal Problem with Principal Components Regression, Cogent Mathematics & Statistics, 6 (1). Principal components regression (PCR) reduces a large number of explanatory variables in a regression model down to a small number of principal components. PCR is thought to be more useful, the more numerous the potential explanatory variables. The reality is that a large number of candidate explanatory variables does not make PCR more valuable; instead, it magnifies the failings of PCR.  

Smith, Gary; Capron, Andrew (2018). Overreaction in Football Wagers, Big Data, 6 (4), 262-279. There is compelling evidence that stock market investors do not fully appreciate the importance of random events on corporate performance and consequently do not fully anticipate regression to the mean in corporate earnings, which creates profitable investing opportunities. This paper investigates whether the same is true of football wagers.   

Smith, Gary (2018). Step Away From StepWise, Journal of Big Data, 5: 32. Stepwise regression is a popular data-mining tool that uses statistical significance to select the explanatory variables to be used in a multiple-regression model. Stepwise regression does not solve the Big-Data problem of too many explanatory variables. Big Data exacerbates the failings of stepwise regression.

Zarins, Zinta; Smith, Gary; and Robert Sallis (2018), Effects Of A 12-week Cycling Training Program On Clinical Parameters In Patients With Parkinson Disease, Medicine & Science in Sports & Exercise. 50 (5S), 490. Patients with Parkinson Disease show marked improvement after a stationary bike regimen.   

Smith, Gary; Artigue, Heidi Margaret (2018). Another Look at Dollar Cost Averaging, Journal of Investing, 27 (2) 66-75. Dollar cost averaging is an imperfect, but helpful, strategy for diversifying investment decisions across time.  

Smith, Gary (2018). Companies are Seldom as Good or as Bad as They Seem at the Time, in Towards a Just Society: Joseph Stiglitz and 21st Century Economics: Essays in Honor of Joseph Stiglitz, Columbia University Press. Professional forecasts of corporate earnings are not correlated perfectly with actual earnings. Companies that forecasters are optimistic about usually do not do as well as predicted, while companies with relatively pessimistic predictions typically do better than predicted. Insufficient appreciation of this statistical principle may partly explain the success of contrarian investment strategies, in particular why stocks with relatively optimistic earnings forecasts underperform those with pessimistic forecasts. 

Smith, Gary (2017). Three Value-Investing Benchmarks, American Association of Individual Investors Journal. Value investors can use models developed by John Burr Williams, Robert Shiller, and John Bogle to gauge whether stocks are cheap or expensive. 

Smith, Gary (2017). Estimation of the Demand for Construction Aggregate, https://doi.org/10.1111/nrm.12144. Quarry operators and government officials often forecast the long-run demand for construction aggregate by multiplying the projected population each year by a per capita consumption number, and adding up these annual demand forecasts. This approach is theoretically unjustified and empirically inaccurate. 

Smith, Gary; Xu, Albert (2017). Stocks Should be Valued With a Term Structure of Required Returns, Journal of Investing, 26 (2), 61-68. In theory, the intrinsic value of a stock is determined by discounting the projected cash flow by a term structure of time-varying required returns. In practice, investors typically use a single discount rate, often a Treasury rate plus a risk premium. A single discount rate is a noisy proxy for the full term structure and can cause large valuation errors.   

Smith, Gary (2016). Overreaction of Dow Stocks, Cogent Economics & Finance, 4(1), 1251831. Several studies have found mean reversion in monthly stock returns over long horizons. However, these studies can be challenged for several reasons, including the neglect or possible misspecification of risk premia. The current paper analyzes daily Dow returns over short horizons, which obviates the most serious issues in long-horizon studies using monthly data. There is strong evidence of overreaction in that large positive and (especially) negative returns tend to be followed by persistent, substantial, and statistically persuasive reversals over the next ten days.

Smith, Gary (2016). Great Company, Great Investment Revisited, Journal of Wealth Management, 2016, 19 (1), 34-39. Fortune magazine publishes an annual list of America’s most-admired companies. These companies’ virtues are well known and presumably already factored into stock prices, yet Anderson and Smith (2006) found that a portfolio of the ten most-admired stocks outperformed the overall market by a substantial and statistically significant margin over the first 22 years that the list was compiled. This paper uses 11 additional years of data to see whether this finding is replicated or refuted.  

Smith, Gary (2016). A Fallacy That Will Not Die, Journal of Investing, 25 (1), 7-15. Regression to the mean is a pervasive statistical phenomenon that invites causal explanations for random fluctuations. A notorious economic example of this fallacy was exposed more than eighty years ago, yet regression to the mean continues to be overlooked or misinterpreted by economists, even Nobel Laureates.

Smith, Gary (2016). Hurricane Names: A Bunch of Hot Air?, Weather and Climate Extremes, 12, 80-84. It has been argued that female-named hurricanes are deadlier because people do not take them seriously. However, this conclusion is based on a questionable statistical analysis of a narrowly defined data set. The reported relationship is not robust in that it is not confirmed by a straightforward analysis of more inclusive data or different data.  

Smith, Gary; Zurhellen, Michael (2015). Sunny Upside? The Relationship Between Sunshine and Stock Market Returns, Review of Economic Analysis, 7, 173-183. It has also been reported that the daily weather in New York City affects U. S. stock returns, a clear challenge to the efficient market presumption that rational investors will not let their assessment of a stock’s value be swayed by whether the sun happens to be shining. We examine a fresh set of data and confirm the existence of a New York City sunshine effect which may have weakened over time as trading has become more geographically dispersed.  

Baum, Gabrielle; Smith, Gary (2015). Great Companies: Looking for Success Secrets in All the Wrong Places, Journal of Investing, 24 (3), 61-72. Many management books ransack lists of thriving companies and claim to have discovered their secrets to success. However, any group of companies (bad, good, or great) will inevitably have some common characteristics. Finding such traits only confirms that we looked, and tells us nothing about whether these found characteristics are responsible for past successes or are reliable predictors of future success. Nor does it tell us whether these companies’ stocks will be profitable investments.   

Smith, Gary (2014). Why Are Some Home Values Resistant and Others Resilient?, International Real Estate Review, 17(2), 223-240. Data for 116 California communities reveal considerable variation in changes in the value of owner-occupied homes during 2005-2010, variation that is related to the price/rent ratios that existed in 2005, the number of rental properties in the community, the increase in home values between 2000 and 2005, and a variety of socioeconomic factors.

Gold, Max; Levere, Jeff; Smith, Gary (2013). Tax-Loss Selling and the Year-End Behavior of Dow Jones Stocks, Accounting and Finance Research, 2 (1), 40-46. A capital gain or loss only has tax consequences if the asset is sold. This tax rule creates an incentive for realizing losses but not gains. If investors implement this tax-harvesting strategy, there should be a surge in the year-end sales of stocks whose prices have declined during the year, and additional downward pressure on their prices. Previous studies have found evidence of volume and price effects, particularly for small stocks. In contrast, our analysis of the components of the Dow Jones Industrial Average finds abnormally high December volume for depressed stocks, but little or no effect on prices—evidently because of their liquidity.

Smith, Gary; Smith, Margaret (2013). Like Mother, Like Daughter?: A Socioeconomic Comparison of Immigrant Mothers and Daughters, International Migration, 51, 181-190. This paper investigates the geographic socioeconomic mobility of immigrants by comparing the residential ZIP code addresses of foreign-born mothers and their adult daughters. We find considerable movement among ZIP codes and substantial upward mobility.   

Smith, Gary (2012). Do People Whose Names begin with “D” Really Die Young?, Death Studies, 36, 182-189.It has been reported that professional baseball players whose first names begin with the letter D tend to die relatively young. However, the statistical evidence for this claim is based on selective data and a statistical test that ignores important confounding influences. A valid test applied to more comprehensive data from the same source does not show a statistically significant relationship between initials and longevity. 

Marks, Stephen; Smith, Gary (2011). The Two-Child Paradox Reborn?, Chance, 24 (1), 54-59. For at least half a century, probability devotees have puzzled over a problem known as the two-child paradox. Suppose we know that a family has two children, and we learn that one of them is a girl. What is the probability that there are two girls? Some have argued that the probability is one-half, others that it is one-third. This problem has reappeared in various guises over the years. Does it matter, for example, if we learn not only the gender of one of the children, but whether the child is the older or younger sibling? A new variant of the two-child problem argues that the two-child probabilities depend on whether the child we learn about has an unusual name, like Florida. This claim is paradoxical in that it does not seem that knowing a child’s name should have any effect on the probability that her sibling is male or female. A Bayesian approach provides a useful discipline in that it requires us to be clear about the assumptions used in our probabilistic inferences.   

Smith, Gary (2011). Another Look at Baseball Player Initials and Longevity, Perceptual and Motor Skills, 112 (1), 211-216. It has been reported that Major League Baseball players whose names have positive initials (such as ACE or GOD) live an average of 13 years longer than do players with negative initials (such as ASS or BAD) or players with neutral initials (such as GHR or TSW). However, this conclusion is based on a very small sample, selective initials, and a flawed statistical test. There is no statistically significant relationship between initials and longevity for Major League Baseball players when a correct test is applied to independently selected initials. 

Smith, Gary (2011). Birth Month is Not Related to Suicide among Major League Baseball Players, Perceptual and Motor Skills, 112 (1), 55-60. It has been reported that, compared to the other ten months of the year, Major League Baseball players are much less likely to commit suicide if they are born in July and much more likely to commit suicide if they are born in August. The data and statistical tests used to support this claim are both incorrect. A correct test applied to the actual data show that there is no relationship between birth month and suicide for Major League Baseball players.  

Smith, Gary (2011). The Baseball Hall of Fame is Not the Kiss of Death, Death Studies, 35, 949-955. It has been reported that the median life expectancy of Major League Baseball players after election to the Baseball Hall of Fame is five years shorter than that of players of the same age who are not elected to the Hall of Fame. This conclusion is surprising because there is no compelling explanation for such a dramatic reduction in life expectancy. However, the data used in that study are incorrect. A robust test applied to correct data shows that there is no statistically persuasive difference in the life expectancy of players elected to the Hall of Fame and their peers. 

Smith, Gary; Levere, Michael; Kurtzman, Robert (2009). Poker Player Behavior After Big Wins and Big Losses, Management Science, 55 (9), 1547-1555. There is a growing body of evidence of psychological influences on investor decisions. A relatively unexplored question is whether experienced and generally successful investors change their investment strategy after an investment does well or does poorly. This paper investigates whether poker players change their style of play after big wins or losses. We find that experienced poker players typically change their style of play after winning or losing a big pot—most notably, playing less cautiously after a big loss, evidently hoping for lucky cards that will erase their loss. This finding is consistent with Kahneman andTversky’s break-even hypothesis and suggests that when investors incur a large loss, it might be time to take a vacation or be monitored closely. Analogous precautions might be appropriate for a manager who negotiates a bad contract, loses an important customer, initiates an unprofitable expansion, approves a disastrous advertising campaign, or endures a scandal or other public relations disaster.

Head, Alex; Smith, Gary; Wilson, Julia (2009). Would a Stock By Any Other Ticker Smell as Sweet?, Quarterly Review of Economics and Finance, 49 (2), 551-561. Some stocks have clever, eye-catching ticker symbols; for example, LUV (Southwest Airlines), MOO (United Stockyards), and GEEK (Internet America). These clever tickers might be a useful signal of the company’s creativity, a memorable marker that appeals to investors, or a warning that the company feels it must resort to gimmicks to attract investors. This paper investigates the performance of stocks with clever ticker symbols during the years 1984-2004. Surprisingly, a portfolio of clever-ticker stocks would have beaten the market by a substantial and statistically significant margin, contradicting the efficient market hypothesis. 

Pinzur, Laura; Smith, Gary (2009). First Names and Longevity, Perceptual and Motor Skills, 108, 149-160. It has been reported that people’s initials can affect their life expectancy. Several studies have also reported that people with unpopular first names are perceived to be less intelligent, attractive, and likable than are people with more popular names. If so, such social stigmatization may jeopardize the life expectancy of people with unpopular names. The California Department of Health Services mortality data base for the years 1960 through 2004 for white, nonHispanic males and females was used to compare the average age at death for decedents with the most popular and least popular names.

Smith, Margaret Hwang; Smith, Gary (2008). Harvesting Capital Gains and Losses, 17 (4), 309-321. Monte Carlo simulations are used to demonstrate that a very attractive tax-based trading strategy is to realize all capital losses, using excess losses to offset realized gains in order to rebalance the portfolio. This strategy increases the mean and median return by taking advantage of the tax-deductibility of losses, and mitigates risk by allowing low-cost portfolio rebalancing. This portfolio rebalancing also restarts the basis and time clock, thereby planting the seeds for a future harvesting of capital losses that can be deducted from income and used to rebalance the portfolio perpetually.

Youn, J.; Sallis, Robert E.; Smith, Gary; Jones, K. (2008). Ocular Injury Rates in College Sports, Medicine and Science in Sports and Exercise, 40 (3), 428-432. A 2004 policy statement from the American Academy of Pediatrics and American Academy of Ophthalmology classified sports as “high risk,” “moderate risk,” “low risk,” or “eye safe” based on the number of eye injuries in each sport. However, counting the percentage of all eye injuries sustained while playing a sport creates a bias towards those sports with higher participation levels. We find that the rate of ocular injury as a result of participation in baseball, basketball, cross-country, football, golf, soccer, swimming and diving, track and field, water polo, sofiball, or volleyball is very low. Hence, any discussion with athletes regarding the utility of eye protection while participating in any of these sports should focus on the athlete's past ocular history instead of the sport to be played. 

Arora, Anita, Capp, Lauren, Smith, Gary (2008). The Real Dogs of the Dow, The Journal of Wealth Management, 10 (4), 64-72. Regression to the mean suggests that companies taken out of the Dow Jones Industrial Average may not be as bad as their current predicament indicates and the companies that replace them may not be as terrific as their current record suggests. If investors are insufficiently aware of this statistical phenomenon, stock prices may be too low for the former and too high for the latter—mistakes that will be corrected when these companies regress to the mean. Thus, stocks taken out of the Dow may outperform the stocks that replace them. We test this hypothesis with the 50 substitutions made since the Dow expanded to 30 stocks in 1928.  

Smith, Gary (2008). Tobin’s q, The New Palgrave Dictionary of Economics, second edition, Larry Blume and Steven N. Durlauf, eds., Hampshire, UK: Palgrave Macmillan. Tobin’s q is the ratio of the market value of a firm to the replacement cost of its assets. This statistic can be used to predict investment spending or to control for a firm’s current and future profitability in empirical studies of corporate structure and behavior. Tobin’s q will no doubt be used in many other empirical studies of corporate structure and behavior because it circumvents the unresolved issue of how to estimate shareholders’ risk-adjusted required return by looking directly at observable market prices, which incorporate both the cash flow expectations of investors and the required returns they use to discount this anticipated cash flow.

Smith, Gary; Dorsey-Palmateer, Reid (2008). Regression to the Mean in Flight Tests, Kahnemann and Tversky report that flight trainees who do well on a maneuver typically do not do as well on the next maneuver. Because they did not understand regression to the mean, the flight instructors attributed this regression to the praise the pilots received—leading to the perverse conclusion that pilots who do well should be criticized. Kahnemann and Tversky do not report any actual data to support this memorable anecdote. This paper uses U. S. Navy flight training data to demonstrate that there is substantial regression to the mean in pilot performances. We also show how these flight scores can be used to assess changes in a pilot’s ability as the training proceeds, taking into account the anticipated regression to the mean.  

Smith, Gary, Gould, Donald P (2007). Measuring and Controlling Shortfall Risk in Retirement, Journal of Investing, 16 (1), 82-95. A key challenge for retired investors is determining the stock-bond asset allocation that, for a given spending rate, provides an acceptable probability of shortfall—having real wealth drop below a specified floor during the investor’s lifetime. Standard portfolio analysis yields the well-known tradeoff between risk and return described by the Markowitz frontier. For retirement planning, we reconceptualize this as a tradeoff between shortfall probability (risk) and the median value of terminal wealth (return). For specified assumptions, there is a stock-bond asset allocation that minimizes shortfall risk. Portfolios with more stocks increase the median values of terminal wealth, but at the expense of higher shortfall risk. Portfolios with less stocks are inferior in that they decrease the median value of terminal wealth and increase shortfall risk. We find that for a variety of plausible assumptions about asset returns, investment strategies, and what constitutes a shortfall, the minimum-risk portfolio generally has between 50 and 70 percent stocks.  

Dorsey-Palmateer, Reid, Smith, Gary (2007). Shrunken Interest Rate Forecasts are Better Forecasts, Applied Financial Economics, 17, 425-430. The accuracy of predicted interest rate changes can be improved by shrinking them toward a prior mean of zero. The application of this idea to interest rate forecasts by the Survey of Professional Forecasters found a consistent improvement in the accuracy of their predictions.   

Smith, Margaret H., Smith, Gary (2007). Homeownership in an Uncertain World with Substantial Transaction Costs, Journal of Regional Science, 47 (5), 881-896. A dynamic model of residential real estate valuation where purchases and sales are affected by uncertain projections of rents and prices.  

Smith, Margaret Hwang, Smith, Gary (2006). Bubble, Bubble, Where's the Housing Bubble, presented at the Brookings Panel on Economic Activity, March 30-31, 2006; subsequently published in Brooking Papers on Economic Activity, 2006: 1, 1-50. Housing-bubble discussions generally rely on indirect barometers such as rapidly increasing prices, unrealistic expectations of future price increases, and rising ratios of housing price indexes to household income and to rent indexes. These indirect measures cannot answer the key question of whether housing prices are justified by the anticipated cash flow. We show how to estimate the fundamental value of a house and use unique rent and price data for matched single-family homes in ten metropolitan areas to illustrate this approach. These data indicate that the current housing bubble is not, in fact, a bubble in most of these cities in that, under a variety of plausible assumptions, buying a house at current market prices still appears to be an attractive long-term investment. 

Smith, Gary; Steinberg, Joseph; Wertheimer, Robert (2006). The Next Best Thing to Knowing Someone Who is Usually Right, Journal of Wealth Management, 9 (3), 51-60. Mean-variance analysis is widely used for portfolio allocation decisions. The use of historical data for the inputs may be inferior to using informed estimates that reflect one’s beliefs about the current financial environment. In this paper we show that portfolios based on expert opinion can outperform portfolios based on historical data, and that even better performance can be achieved by taking into account regression to the mean.

Anderson, Jeff, Smith, Gary (2006). A Great Company Can be a Great Investment, Financial Analysts Journal, 62 (4), 86-93. A classic investing mistake is to confuse a great company with a great investment, since a company’s well-known virtues are presumably already factored into the price of the company’s stock. We test this “mistake” by looking at the stock performance of the companies identified each year by Fortune magazine as America’s most admired companies. Surprisingly, a portfolio of these stocks outperformed the market by a substantial and statistically significant margin, contradicting the efficient market hypothesis.   

Smith, Gary (2006). The Five Elements and Chinese-American Mortality, Health Psychology, 25 (1), 124-129. It has been reported that California mortality data for the years 1969-1990 indicate that Chinese-Americans are more vulnerable to those diseases that Chinese astrology and traditional Chinese medicine associate with their birth years. However, there are theoretical and statistical ambiguities in this analysis, and California mortality data for 1960-1968 and 1991-2001 do not replicate the results reported for 1969-1990.

Morrison, Stilian, Smith, Gary (2005). Monogrammic Determinism?, Psychosomatic Medicine, 67, 820-824. It has been reported that people whose names have positive initials (such as ACE or VIP) live longer than do people with negative initials (such as PIG or DIE). However, there is no compelling theory for why longevity should be markedly affected by initials and the statistical evidence of such effects is flawed by the grouping of decedents by the year of death.

Smith, Gary, Smith, Joanna (2005). Regression to the Mean in Average Test Scores, Educational Assessment, 10, 377-399. Two issues—the need to assess changes in abilities and the need to account for regression to the mean—suggest an unconventional way of using test scores to evaluate schools. 

Smith, Gary (2004). Asian-American Deaths Near the Harvest Moon Festival, Psychosomatic Medicine, 66, 378-381. Independent data do not support the hypothesis that elderly Chinese-, Korean-, or Vietnamese-American women are able to prolong their lives until after the celebration of the Harvest Moon Festival. 

Smith, Margaret H.; Smith, Gary (2004). Is a House a Good Investment?, Journal of Financial Planning, 17, 67-75. How to determine whether a house is cheap or expensive.

Dorsey-Palmateer, Reid, Smith, Gary (2004). Bowlers’ Hot Hands, The American Statistician, 58, 2004, 38-45. Gilovich, Vallone, and Tversky’s analysis of basketball data indicates that a player’s chances of making a shot are not affected by the results of earlier shots. However, their basketball data do not control for several confounding influences. Our analysis of professional bowling indicates that the probability of rolling a strike is not independent of previous outcomes and that the number of strikes rolled varies more between games than can be explained by chance alone.  

Keil, Manfred, Smith, Gary, Smith, Margaret H (2004). Shrunken Earnings Predictions are Better Predictions, Applied Financial Economics, 14, 937-943. The accuracy of analysts’ forecasts of relative earnings can be improved by shrinking their forecasts toward the mean.

Smith, Gary (2004). Idler and Kasl’s p Values: A Cautionary Lesson, Psychosomatic Medicine, 66, 373-375. A study of elderly New Haven residents indicated that some Christians and Jews postponed their deaths until after the celebration of religious holidays. However, the correct p values are larger than they report and make their conclusions less convincing, especially for Jews.

Smith, Gary (2003). Horseshoe Pitchers’ Hot Hands, Psychonomic Bulletin & Review, 10, 753-758.. Horseshoe pitchers are more likely to throw a double ringer after having thrown a double in the preceding inning or in the two preceding innings. If their hands do not get hot, they at least get warm.

Fesenmaier, Jeff, Smith, Gary (2002). The Nifty-Fifty Re-Revisited, Journal of Investing, 11, 86–90. The basic elements of the Nifty Fifty story are sound: with the spectacular exception of Wal-Mart, the glamour stocks that were pushed to relatively high P/E ratios in the early 1970s did substantially worse than the market, in both the short and long run.   

Lee, Marcus; Smith, Gary (2002). Regression to the Mean and Football Wagers, Journal of Behavioral Decision Making, 15, 329–342.. Betting data on National Football League games indicate that gamblers do not fully account for regression to the mean. 

Smith, Gary (2002). Scared to Death?, British Medical Journal, 325, 1442-1443. Are Chinese- and Japanese-Americans so frightened by the number 4 that they have abnormally high cardiac mortality on the 4th day of the month?   

Tucker Thole, Robert; Sallis, Robert E.; Rubin, Aaron L.; Smith, Gary (2001). Exercise-Induced Bronchospasm Prevalence in Collegiate Cross-Country Runners, Medicine & Science in Sports & Exercise, 33 (10), 1641–1646.

Sallis, Robert E.; Jones, Kirk; Sunshine, Sam; Smith, Gary; Simon, Lauren (2001), Comparing Sports Injuries in Men and Women, International Journal of Sports Medicine, 22, 420–423.

Schall, Teddy, Smith, Gary (2000). Do Baseball Players Regress toward the Mean?, The American Statistician, 54, 231-235 (also 1999 Proceedings of the Section on Statistics in Sports, American Statistical Association, 2000, 8–13). Predictions of standardized batting averages and earned run averages can be improved consistently and substantially by using correlation coefficients estimated from earlier seasons to shrink performances toward the mean.   

Schall, Teddy; Smith, Gary (2000). Career Trajectories in Baseball, Chance, 35–38. We investigate the typical performance record for baseball hitters and pitchers during the course of their careers. We also consider whether the length of a player’s career can be predicted accurately from his first-year performance. 

Lee, Peter; Smith, Gary (2000). Are Jewish Deathdates Affected by the Timing of Holidays?, Social Biology, Spring-Summer, 127–134. In contrast to other research, we find no persuasive evidence that Jews can postpone their deaths until after the celebration of religious holidays or birthdays. Our data do suggest that there may be an increase in deaths in the weeks shortly before and after birthdays. 

Smith, Gary (1999). Statistics for Liberal Arts Students, 1998 Proceedings of the Section on Statistical Education, American Statistical Association, 172–177. Many students will take only one statistics course in their entire lives. What should statistics professors try to teach in this one course, their only opportunity to help these students develop their statistical reasoning?  

Smith, Gary (1998). Learning Statistics by Doing Statistics, Journal of Statistics Education, November. To help students develop statistical reasoning, a traditional introductory statistics course was modified to incorporate a semester-long sequence of projects, with written and oral reports of the results. Student test scores improved dramatically and students were overwhelmingly positive in their assessment of this new approach.  

Royer, Heather; Smith, Gary (1998). Can the Famous Really Postpone Death?, Social Biology, Fall-Winter, 302–305.. It has been reported that famous people are often able to postpone their deaths until after a birthday. A reanalysis of these data shows that there were actually a relatively large number of deaths in the month preceding and the months following the birthday.   

Smith, Gary (1997). Do Statistics Test Scores Regress Toward the Mean?, Chance, Winter, 42–45. Ten years of data for an introductory statistics class indicate that a student who scores one standard deviation above (or below) the mean on either the midterm or final examination is predicted to score 0.6 standard deviations above (or below) the mean on the other test. 

Smith, Gary (1997). Learning to Speak and Speaking to Learn, College Teaching, Spring 1997, 49–51. A speaking-intensive courses can not only help students develop the ability to speak coherently and persuasively, but also can help them learn a course’s subject matter.

Anabtawi, Iman; Smith, Gary (1994). Macroeconomic Modeling of Money, Credit, and Banking, Eastern Economic Journal, Summer, 275-290. . A supply-and-demand model of financial markets explains several events that simpler models find paradoxical: some events stimulate the economy but contract M1; open market purchases need not be multiplied by the banking system to be powerful; business-cycle fluctuations in tax revenue can have strong effects on financial markets; and increased intermediation can be contractionary.