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 [...]
About Larry Swedroe
Larry Swedroe is the author or co-author of 18 books on investing, including his latest Enrich Your Future.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 [...]
Is the Market Getting more Efficient?
Another Alpha Opportunity Bites the Dust In 1998, Charles Ellis wrote “Winning the Loser’s Game,” in which he presented evidence that while it is possible [...]
Value and Momentum and Investment Anomalies
The predictive abilities of value and momentum strategies are among the strongest and most pervasive empirical findings in the asset pricing literature. (here is a [...]
Is Size a Useful Investing Factor or Not?
In his famous 1981 paper, "The Relationship Between Return and Market Value of Common Stocks,” Rolf Banz found that small firms have higher risk-adjusted returns [...]
Profitability Factor Details: Taxable Income is Tied to Future Profitability and Returns
Robert Novy-Marx’s 2013 paper “ The Other Side of Value: The Gross Profitability Premium” not only provided investors with new insights into the cross-section of [...]
Trend Following Research: Breaking Bad Trends
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 [...]
Should Treasury Bills Be The Risk-Free Asset in Asset Pricing Models?
In virtually all studies on asset pricing and asset pricing models, the one-month Treasury bill is the choice as the risk-free rate. In his study [...]
Combining Value and Profitability Factors to Improve Performance
Prior Research on Value and Profitability Factors The 1997 publication of Mark Carhart’s paper “On Persistence in Mutual Fund Performance” led to the four-factor model, [...]
Equity Trend Following Performance Around the Globe
Time-series momentum (TSMOM) historically has demonstrated abnormal excess returns. Also called trend following, it is measured by a portfolio that is long assets that have [...]
Lottery Preferences and Their Relationship with Factor Investing
Among the assumptions in the first formal asset pricing model, the CAPM, is that investors are risk-averse, they maximize the expected utility of absolute wealth, [...]
Accruals and Momentum and Their Implications for Factor Investors
The price momentum and accruals (the difference between accounting earnings and cash flows—adjustments made for revenue that has been earned but not received, and costs [...]
Even Great Investments Experience Massive Drawdowns
Editor's Note: The ability of value investors to adhere to their investment strategy has been put to the greatest test ever. From January 2017 through [...]
Cross-Asset Signals and Time-Series Momentum
In their paper “Time Series Momentum,” published in the May 2012 issue of the Journal of Financial Economics, Tobias Moskowitz, Yao Hua Ooi and Lasse [...]
Is Systematic Value Dead???
Value investing is the age-old investment strategy that buys securities that appear cheap relative to some fundamental anchor.Ronen Israel, Kristoffer Laursen, Scott A. Richardson in [...]
Fundamental Momentum, the Carry Trade, and Currency Returns
Momentum in prices is the tendency of assets that have performed well recently (such as over the prior year) to outperform assets in the same [...]
Left Tail Risk and Left Tail Momentum
The positive trade-off between risk and expected return is the most fundamental concept in financial economics. Most investors are risk-averse. In order to hold higher-risk [...]
Combining Momentum with Long-Term Reversal
Two of most documented anomalies in the asset pricing literature are the momentum effect and the long-term reversal effect. Momentum is typically defined as the [...]