Is The Value Premium Smaller Than We Thought?
From 2017 through March 2020, the relative performance of value stocks in the U.S. was so poor, experiencing its largest drawdown in history, that many [...]
About Larry Swedroe
Larry Swedroe is the author or co-author of 18 books on investing, including his latest Enrich Your Future.Factor Timing Is Tempting
Academic research has found that factor premiums are both time-varying and dependent on the economic cycle. For example, Arnav Sheth, and Tee Lim, authors of [...]
International Tests of Factor Anomalies: Most Don’t Survive
Since the development of the capital asset pricing model (CAPM) about 50 years ago, academic researchers have documented hundreds of “anomalies” that generate significant positive [...]
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 [...]