larryswedroe

The Impact of Goodwill on Stock Returns

A firm’s stock price should reflect the value of both its tangible and intangible capital. While tangible capital has been widely studied, intangible capital has [...]

Value Investing and the Role of Intangibles

Recent research, including the 2020 studies “Explaining the Recent Failure of Value Investing” and “Intangible Capital and the Value Factor: Has Your Value Definition Just [...]

The Benefits of Sin Stocks

While environmental, social, and governance (ESG) investing continues to gain in popularity, economic theory suggests the share prices of “sin” businesses (typically those involved in [...]

The Role of Book-to-Market in Bond Returns

My August 17, 2020, article for Advisor Perspectives, “Factor-Based Investing Beats Active Management for Bonds,” provided the evidence from a series of academic papers on [...]

The Misery Index and Future Equity Returns

Prospect theory was developed by Daniel Kahneman and Amos Tversky in 1979. The theory starts with the concept of loss aversion—the observation that people react [...]

Low Volatility Factor Investing: How Investment Horizon Affects Results

Two of the more interesting puzzles in finance are the high beta anomaly (high beta stocks have lower returns) and the IVOL anomaly (stocks with [...]

Private Equity: Is There Anything Special There?

As the following table demonstrates, since its inception in the 1970s, the private equity industry has grown significantly. According to Preqin data, there are now [...]

The Performance of Volatility-Managed Portfolios

As far back as 1976, with the publication of Fischer Black’s “Studies of Stock Price Volatility Changes” financial economists have known that volatility and returns [...]

Combining Value and Profitability Factors: the International Evidence

My October 29, 2020, article for Alpha Architect examined the research on the profitability factor. I then reviewed the findings of the June 2020 study [...]

The Explanatory Power of Factor Momentum

Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at [...]

Predictability of the Value Premium Across Asset Classes

The value spread is the difference between the value signal in the long versus the short portfolio. This isn’t the first time we have hit [...]

Resurrecting the Value Premium

The dramatic underperformance of value stocks as defined by the HmL (the return on high book-to-market stocks minus the return on low book-to-market stocks) since [...]

Building a Better q-Factor Asset Pricing Model

Since the development of the first asset pricing model, the Capital Asset Pricing Model (CAPM), academic research has attempted to develop models that increase the [...]

Inflation and the Value Premium

The grand experiment of combining massive fiscal and monetary stimulus at a time when the economy is already recovering strongly—the Fed’s latest forecast for 2021 [...]

Is There a Replication Crisis in Finance?

In recent years the field of empirical finance has faced challenges from papers arguing that there is a replication crisis because the majority of studies [...]

Conditional Volatility Targeting

Financial economists have long known that volatility and returns are negatively correlated. Fischer Black documented this in his 1976 paper “Studies of Stock Price Volatility [...]

The Forecasting Power of Value, Profitability, and Investment Spreads

Studies such as the 2019 paper “Value Return Predictability Across Asset Classes and Commonalities in Risk Premia,” have demonstrated that while it is difficult to [...]

The R&D Premium: Is it Risk or Mispricing?

Asset pricing models are important because they help us understand which factors explain the variation of returns across diversified portfolios. However, models are not like [...]

Do Security Analysts Follow the Academic Evidence?

As my co-author Andrew Berkin and I explain in our new book “Your Complete Guide to Factor-Based Investing,” there is considerable evidence of cross-sectional return [...]

The Quality Factor—What Exactly Is It?

The existence of a quality premium in stocks that has been persistent over time, pervasive around the globe, and robust to various definitions have been [...]