larryswedroe

Do Interest Rates Explain Value’s Underperformance?

From January 2017 through March 2020, the value premium, defined by HML (the return of high book-to-market stocks minus the return of low book-to-market stocks [...]

Prospect Theory Helps Explain Return Anomalies

The field of behavioral finance provides us with fascinating insights into individual investor behavior, including how individuals view risk, as well as the impact of [...]

The Size Effect in Multifactor Portfolios

The lack of a statistically significant size premium in the U.S. since the publication of Rolf Banz’s 1981 paper, “The Relationship Between Return and Market [...]

Trend Following is Everywhere

Similar to some better-known factors, such as size and value, time-series momentum (TSMOM) historically has demonstrated abnormal excess returns. For the less familiar with trend [...]

Is There a Tail Risk Premium in Stocks?

It has been well documented both that stock returns have much fatter tails than a normal distribution would generate, and that tail events occur much [...]

Volatility Expectations and Returns

A large body of research, including the 2017 study “Tail Risk Mitigation with Managed Volatility Strategies” by Anna Dreyer and Stefan Hubrich, demonstrates that while [...]

Is There Something Wrong with the Value Premium?

The dramatic underperformance of the value premium since 2018, among the largest drawdowns in history, has led many to question its existence. It is certainly [...]

Do Insider Trades Provide Insights into Future Returns?

The volume of work that has been done on insider transactions is not inconsequential, we've covered a variety of research on the topic in several [...]

The Gap Between Large and Small Companies is Growing. Why?

In my role as chief research officer for the Buckingham Family of Financial Services, I receive many questions from investors and advisors alike, asking me [...]

The Massive Performance Divergence Between Large Growth and Small Value Stocks

From 2017 through 2019, the Russell 1000 Growth Index returned 20.5 percent per annum, outperforming the Russell 1000 Value Index, which returned 9.7 percent, by [...]

The Idiosyncratic Volatility Puzzle: Then and Now

One of the interesting puzzles in finance is that stocks with greater idiosyncratic volatility (IVOL) have produced lower returns (see an earlier post here). This [...]

International Evidence on Factor Premiums

Klaus Grobys contributes to the literature on asset pricing models with his October 2019 paper, “Another Look on Choosing Factors: The International Evidence.” Using bootstrap [...]

Improving the Performance of Deep Value Strategies

A large body of evidence demonstrates that investment strategies focused on buying stocks that are cheap relative to measures of fundamental value have achieved higher [...]

Global Impact of Investor Home Country Bias

A large body of research demonstrates that “familiarity breeds investment.” For example, a study by Gur Huberman found that shortly after AT&T was broken up [...]

Are Earnings Forecasts of Sell-side Analysts Biased?

There is a substantial body of evidence linking various accounting ratios to expected stock returns. One explanation of the links is that they could be [...]

Are Value, Carry and Momentum Regime Dependent?

Over the past decade academics and practitioners alike have argued that multi-factor portfolios offer significant benefits to investors looking for enhanced and more diversified solutions. [...]

The Investment Factor and Expected Returns

Editor's note: Earlier this week, Lu Zhang discussed his thoughts on the investment factor and expected returns. In this piece, Larry discusses a recent research [...]

What Returns Should Investors Expect from Private Equity

The collapse in interest rates, combined with historically high valuations (at least for U.S. stocks), have led many endowments, pension plans (especially those with large [...]

The Quality Factor—What Exactly Is It?

While the quality factor has been identified in the literature (including papers such as “Buffett’s Alpha,” “Global Return Premiums on Earnings Quality, Value, and Size,” [...]

Active Share: Predictor of Future Performance or Urban Legend?

The crowning achievement for investors is the ability to identify which of the few active mutual funds will outperform in the future. Despite an overwhelming [...]