larryswedroe

Using Firm Characteristics to Enhance Momentum Strategies

Research into the momentum factor continues to demonstrate its persistence and pervasiveness, including across factors. Recent papers have focused on trying to identify ways to [...]

The Short Duration Premium

In my June 4, 2019 article “The Re-Death of Value, or Déjà Vu All Over?” I noted that one possible explanation for at least part [...]

Can We Explain the Low Volatility Anomaly?

One of the big problems for the first formal asset pricing model developed by financial economists, the CAPM, was that it predicts a positive relation [...]

Structured Notes: The Exploitation of Retail Investors

One of the most well known and most beloved forms of literature is the fairy tale. Although most fairy tales are not about fairies, they [...]

The Variance Risk Premium is Pervasive

The variance risk premium (VRP) refers to the fact that, over time, the option-implied volatility has tended to exceed the realized volatility of the same [...]

Can Low Vol Strategies Be Improved

My Advisor Perspective article of June 17, 2019 discussed the regime shifting nature of the low volatility anomaly—low volatility stocks have outperformed high volatility stocks, [...]

Strategies to Reduce Crash Risk in Stocks

Because equities are much riskier than high-quality bonds, the vast majority of the risk of a conventional 60 percent equity/40 percent bond portfolio is equity [...]

Enhancing the Performance of Momentum Strategies

In “Your Complete Guide to Factor-Based Investing,” Andy Berkin and I presented the evidence demonstrating that momentum, both cross-sectional (or relative) momentum and time-series (or [...]

Is Active Management Skilled? If So, Who Benefits?

According to Christian mythology, the Holy Grail was the dish, plate or cup with miraculous powers that were used by Jesus at the Last Supper. [...]

The Curse of Popularity

We can define popularity as the condition of being admired, sought after, well-known, and/or accepted. One would think popularity is a good thing. However, when [...]

Does Leverage Explain the Investment Premium?

Research demonstrates that the investment factor has explanatory power for the cross-section of stock returns, with high-investment firms tending to underperform low-investment firms. For example, [...]

The Re-Death of Value, or Déjà Vu All Over?

The underperformance of value stocks over the past 10 years has received much attention from the financial media and led at least some investors to [...]

Volatility Targeting Improves Risk-Adjusted Returns

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

Volatility Anomalies: IVOL and Vol-of-Vol

Two of the more interesting puzzles in finance are related to volatility—stocks with greater idiosyncratic volatility (IVOL) have produced lower returns and stocks with high [...]

The Folly of Hiring Winners and Firing Losers

One of the mistakes that prevent investors from achieving their goals is that when it comes to evaluating investments and investment strategies most think that [...]

Deep Dive into the Value Factor

The financial equivalent of the famous Miller Lite, “tastes great, less filling” debate is the debate between traditional financial economics which uses risk theories to [...]

The Factors that Plague Factor Investing

For those interested in the literature on factor-based investing, a new paper by Robert Arnott, Campbell Harvey, Vitali Kalesnik and Juhani Linnainmaa, “Alice’s Adventures in [...]

Investment Strategy in an Uncertain World

In 1921, University of Chicago Professor Frank Knight wrote the classic book “Risk, Uncertainty, and Profit.” An article from the Library of Economics and Liberty [...]

The Momentum of News

Since the development of the capital asset pricing model (CAPM) in the 1960s, hundreds of anomalies (what John Cochrane famously called a “zoo of new [...]

Why the Size Premium Should Persist

As the chief research officer for Buckingham Strategic Wealth and The BAM Alliance, I’m often asked, after any asset class or factor experiences a period [...]