Asset Diversification in a Flat World
Diversification is a fundamental principle of prudent investing due to its ability to mitigate/minimize risks. In fact, it has been called the only free lunch [...]
About Larry Swedroe
Larry Swedroe is the author or co-author of 18 books on investing, including his latest Enrich Your Future.The Profitability Factor: International Evidence
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 stock [...]
How a Multi-factor Portfolio is Constructed Matters
The CAPM was the first formal asset-pricing model. Market beta was its sole factor. With the 1992 publication of their paper, “The Cross-Section of Expected [...]
How Leverage Constraints Effect Mutual Fund Risk Taking
The 2014 study by Andrea Frazzini and Lasse Heje Pedersen, “Betting Against Beta,” found strong support for low-beta strategies. I’ve previously written on low-beta strategies [...]
The Carry Factor and Global Risks
The carry factor is the tendency for higher-yielding assets to provide higher returns than lower-yielding assets — it is a cousin to the value factor, [...]
Deconstructing the Low Volatility/Low Beta Anomaly
One of the big problems for the first formal asset pricing model developed by financial economists, the Capital Asset Pricing Model (CAPM), was that it [...]
Explaining the Beta Anomaly
The superior performance of low-beta and low-volatility stocks was documented in the literature back in the 1970s — by Fischer Black (in 1972) among others [...]
Investor Attention and the Low Volatility Anomaly
One of the big problems for the first formal asset pricing model developed by financial economists, the Capital Asset Pricing Model (CAPM), was that it [...]
Explaining the Demand for Higher Beta Stocks
The Capital Asset Pricing Model (CAPM) indicates returns should go up linearly as beta increases (in other words, risk and return are positively related). However, [...]
The Costs of Implementing Momentum Strategies
There are now hundreds of factors in what John Cochrane famously called the “zoo of factors.” However, there are only a small number that meet [...]
Risk-Based Explanations for the Momentum Premium
Most of the literature on the momentum factor has focused on behavioral explanations, generally either investor underreaction or overreaction. For example, in his paper “Explanations [...]
Momentum Everywhere, Including in Factors
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 [...]
Time Series Momentum (aka Trend-Following): A Good Time for a Refresh
Similar to some better-known factors like size and value, time-series momentum is a factor which has historically demonstrated above-average excess returns. Time-series momentum, also called [...]
The Value Effect and Macroeconomic Risk
It has been well-documented that value stocks have provided higher expected returns than growth stocks. However, there is a great debate about the source of [...]
The Tax Efficiency of Long-Short Strategies
Conventional wisdom can be defined as ideas that are so accepted that they go unquestioned. Unfortunately, conventional wisdom is often wrong. Two great examples are [...]
The Returns to Value Strategies When Valuation Spreads Are Wide (Deep Value)
The academic research has generally found valuations, such as the earnings yield (E/P) (or the CAPE 10 earnings yield) and valuation spreads, have predictive value [...]
Momentum and Market Anomalies
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 [...]
Factor Timing Investigation: Interest Rates, Value Spreads, and Factor Premiums
Now that the Federal Reserve has begun the process of raising interest rates, and has announced their intention to begin to unwind their policy of [...]
Short Term Momentum and Long Term Reversals Can Coexist
In their seminal 1993 paper, “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency,” Narasimhan Jegadeesh and Sheridan Titman reported significant returns [...]
Diversification Benefits of Time Series Momentum
Similar to some better-known factors like size and value, time-series momentum is a factor that historically has demonstrated above average excess returns. Time-series momentum, also called trend-momentum or absolute momentum, is measured by a portfolio long assets that have had recent positive returns and short assets that have had recent negative returns. Compare this to the traditional (cross-sectional) momentum factor that considers recent asset performance only relative to other assets. The academic evidence suggests that inclusion of a strategy targeting time-series momentum in a portfolio improves the portfolio’s risk-adjusted returns.