Options 101: Understanding Options Basics
By Jose Ordonez|March 27th, 2024|Options|
Options have a bad reputation, and for good reason. After all, our friends at Wall Street Bets have taken over and turned the options market into a casino. But just like options can be used for gambling, they can also be used to structure risk and formulate payoffs that have the potential to reduce risk at the portfolio level. In fact, options are one of the best tools at our disposal to manage portfolio risk, if used correctly.
Personality Differences and Investment Decision-Making
By Elisabetta Basilico, PhD, CFA|March 25th, 2024|Research Insights, Basilico and Johnsen, Academic Research Insight, Other Insights, Behavioral Finance|
This study offers valuable information to provide insights into the underlying mechanisms driving investment behavior. For example, recognizing the impact of Neuroticism on belief formation and risk perception can help explain why some investors exhibit greater aversion to stock market volatility. Similarly, understanding how Openness influences risk preferences can shed light on why certain individuals are more willing to take investment risks than others.
Tracking Error is a Feature, Not a Bug
By Larry Swedroe|March 22nd, 2024|Empirical Methods, Larry Swedroe, Research Insights, Other Insights, Active and Passive Investing|
The benefits of diversification are well known. In fact, it’s been called the only free lunch in investing. Investors who seek to benefit from diversification of the sources of risk and return of their portfolios must accept that adding unique sources of risk means that their portfolio will inevitably experience what is called tracking error—a financial term used as a measure of the performance of a portfolio relative to the performance of a benchmark, such as the S&P 500.
Short Campaigns by Hedge Funds
By Tommi Johnsen, PhD|March 18th, 2024|Research Insights, Basilico and Johnsen, Academic Research Insight, Corporate Governance|
Our analysis highlights the importance of short campaigns for understanding the economic impact of activist hedge funds.
Breaking Bad Momentum Trends
By Larry Swedroe|March 15th, 2024|Larry Swedroe, Factor Investing, Research Insights, Other Insights, Momentum Investing Research|
In their two papers, Goulding, Harvey, and Mazzoleni showed that observed market corrections and rebounds carry predictive information about subsequent returns and showed how that information could be utilized to enhance the performance of trend-following strategies by dynamically blending slow and fast momentum strategies based on four-state cycle-conditional information.
Exchange Funds 2.0: A Newly Accessible Way to Diversify Concentrated Positions
By Mike Allison|March 14th, 2024|Research Insights, Tax Efficient Investing|
When investors have a concentrated stock position that has performed well, they eventually face the same tough question: Should they continue to hold the position (and the outsized exposure it brings to their portfolio) or diversify – and face significant capital gains taxes?
Private Equity Performance Around the Globe
By Elisabetta Basilico, PhD, CFA|March 11th, 2024|Private Equity, Research Insights, Basilico and Johnsen, Academic Research Insight, Other Insights|
This study provides valuable insights into how private equity performs in regions outside North America, reflecting broader trends in global investment.
Betting on a Short Squeeze as Investment Strategy
By Larry Swedroe|March 8th, 2024|Skewness, Factor Investing, Research Insights, Larry Swedroe, Guest Posts, Other Insights, Tactical Asset Allocation Research|
Short squeezes are often associated with a large positive jump in the price of a stock. Filippou, Garcia-Ares, and Zapatero demonstrated that skewness-seeking investors try to identify securities that could experience a short squeeze in the near future and are willing to pay a premium for them. That results in an overvaluation of the options and, on average, negative returns. Investors are best served to avoid investments with lottery-like distributions. One way to do that is to turn a blind eye to social media sites like Robinhood and Reddit so you don’t get caught up in the hype and excitement. That’s another example of why retail investors are called “dumb money.” Forewarned is forearmed.
Robo-advisors: A well-researched topic
By Tommi Johnsen, PhD|March 4th, 2024|Financial Planning, Research Insights, Robo Advisor, Basilico and Johnsen, Academic Research Insight, AI and Machine Learning|
Along with the rapid growth in the utilization of robo-advisors, there has been similar growth in academic interest about robo-advisors. What is the current state and what are the main research streams in the literature?
DIY Trend-Following Allocations: March 2024
By Ryan Kirlin|March 1st, 2024|Index Updates, Research Insights, Tool Updates, Tactical Asset Allocation Research|
Full exposure to domestic equities. Full exposure to international equities. Partial exposure to REITs. No exposure to commodities. Partial exposure to intermediate-term bonds.