Behavioral psychology is going mainstream in American culture, from Michael Lewis’s “Moneyball,” to recent Nobel prizes won by behavioral economics giants Daniel Kahneman and Richard [...]
Merger arbitrage, sometimes known as "risk arbitrage," is an investing strategy in which the investor bets on announced M&A deals. After a merger is announced, [...]
One area in investing that is often overlooked by investors is trade execution, which relates primarily to commissions, bid-ask spreads, and price impact. Yet sometimes [...]
The passive investing revolution is truly upon us. Ever since 1975, when Jack Bogle introduced the first index mutual fund, passive indexing has marched on [...]
Psychology permeates nearly every area of human endeavor. In the world of investing, for instance, psychology can help us understand the systematically poor decision-making that [...]
Time for a little myth busting. Recently, the Motley Fool posted an article that argued the following: when market volatility is low, protective put options are cheap. From the [...]
In their search for strong investment returns, many investors have increasingly looked abroad to international markets. International diversification makes sense from several perspectives. For instance, we [...]
Investing can perhaps be best learned through a combination of applied practice and continuous study. While there is no substitute for real-world experience and the [...]
Eugene Fama's Efficient Market Hypothesis argues that because stock prices follow a "random walk," future price behavior cannot be predicted. In his seminal paper, "Random Walks [...]
The dot-com bubble of the late 90s was a wild time in the stock market. Internet stocks were trading through the roof, tech IPOs were [...]
During the past few decades, newly discovered stock anomalies have been embarrassing existing factor models, such as the Fama-French 3-factor. As many readers know, each [...]
How do stock prices react to earnings announcements? Sometimes prices go up, and sometimes they go down. But here is a potentially more interesting question: What is [...]
Stock market anomalies behave in mysterious ways. Over long periods of time they can provide expected outperformance versus passive indexes, but in the short run they can [...]
The promise of active investing is compelling: the opportunity to earn higher risk-adjusted returns! And paying a fee to an active manager--who is doing something unique--can make sense. And [...]
Here we are in August, a great time to drink--and think--about wine. Of course, as a research-focused finance blog, our angle on wine is a [...]
Investors talk a big game when describing how they evaluate mutual funds. They say they consider things like the objectives of the fund, its size, and [...]
At first glance, it's not obvious why business principles would be helpful in informing a long-term wealth management strategy. Yet, the world of business provides useful [...]
One of the dangers of being a quantitative investor is that when you see patterns in historical data you might wrongly assume they will repeat. Put [...]
Making choices can be difficult, but possible alternatives can be arranged in a way that facilitates effective decision-making. This is the idea behind “choice architecture,” [...]
In some ways, investing is simple. After all, we all want the same things. High returns. Low volatility. Small max drawdowns. Unfortunately, it's very difficult--if [...]
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