The Virtue of Complexity in Return Prediction
This article explores how researchers forecast market returns by aggregating expected returns from individual stocks.
Cut Through the Noise! These Two Factors Tend to Drive Portfolio Success
Let’s break down how to build a robust factor portfolio—without getting lost in the weeds. We investigate which equity factors have the strongest historical returns and diversification benefits from a long-only perspective.
The Aggregated Equity Risk Premium
This article explores how researchers forecast market returns by aggregating expected returns from individual stocks.
A New Approach to Regime Detection and Factor Timing
The financial research literature has found that the performance of assets (and factors) can vary substantially across regimes - factor premiums can be regime dependent. Unfortunately, the real-time identification of the current economic regime is one of the biggest challenges in finance.
How Tiny Price Differences Help Track Small Investors’ Trades
This article explains how researchers studied small investors' trading habits by looking at tiny price differences, called subpennies, in stock trades. They found that the current method to identify these trades isn't very accurate. By using a new approach, they improved the accuracy, helping to better understand how small investors buy and sell stocks.
Making Factor Strategies Work for Everyone
This article explores the difference between tradable and on-paper (theoretical) risk factors in investing. Risk factors are strategies that help explain stock market returns, but many work only in theory and not in real life.
Enhancing Industry Momentum Strategies: Finding Hidden Neighbors
The main benefit of constructing industry momentum portfolios based on standard ICS is that it is straightforward and reproducible. However, that benefit may come at the cost of accuracy and oversimplification of complex industry relationships between companies.
How Trust in Financial Advisors Affects Investment Choices
A study found that when investors trust their advisors more, they are more likely to invest in riskier assets, even if the advisor charges higher fees.
Investing Isn’t About Being Mostly Right
Investing isn’t about being mostly right. In fact you can be mostly wrong and beat portfolios that were mostly right! Today, we’ll explore how investors can potentially improve portfolio outcomes by targeting two seemingly contradictory but deeply complementary systems as outlined in the latest Mauboussin-Callahan paper, Probabilities & Payoffs: The Practicality and Psychology of Expected Value. But understanding this counterintuitive reality requires a shift in mindset—one that embraces uncertainty and focuses on the power of diversification.
Understanding What Drives Momentum in Global Stock Markets
When information about a company comes out gradually, investors might not react strongly, leading to momentum. Other factors, like how a company's value is perceived, also play a role, but to a lesser extent.
US Value Stocks Trading at Historically High Discounts
For equity investors there have been two major narratives over the last 17 calendar year period 2008-2024. The first is that US stocks have far outperformed international stocks. The other narrative has been the outperformance of growth stocks relative to value stocks.
Do Women Receive Worse Financial Advice?
A study based in Hong Kong by using undercover auditors found that female clients were more likely to be advised to invest in individual or local securities instead of getting a mix of different investments.
Portfolio Tax Strategies: Section 351 vs. Exchange Funds vs. Long/Short Tax-Loss-Harvesting
Three powerful strategies may help investors diversify concentrated positions while deferring or minimizing immediate capital gains taxes: ✅ Section 351 transactions (often used to seed new ETFs) ✅ Exchange funds (offered by firms like UseCache and traditional private banks) ✅ Long/short tax loss harvesting strategies (offered by firms like AQR or Quantinno using active trading to generate offsetting losses)
Understanding Financial Inclusion in the United States
This article explores how many American households have retirement and bank accounts, focusing on those with lower incomes.
Adverse Effects of Index Replication
The empirical research we have reviewed shows that the (hidden) costs of index construction and rebalancing policies to investors are about 10 times the expense ratios.
Anti-Dividend Investing: Yield Matters—But Not How You Think!
Dividends are the comfort food of investing. Who wouldn’t love feeling like they’re getting a seemingly “free” payout just for holding onto a stock? As with all good things, there's a little more—perhaps a whole lot more—to the story. Here’s why: even in a tax-free setting, selling stocks before dividend payouts can lead to abnormal returns.
How Bond ETFs Make Trading Easier and Cheaper
Bond ETFs have attracted new investors who previously never owned bonds or bond funds. Bond ETFs have made it easier for more people and institutions to start investing in bonds.
Private Infrastructure as an Asset Class
This paper provides an introductory overview of infrastructure investing, exploring its characteristics, benefits, challenges, and potential role in a diversified portfolio.
What is Trend Following? A Painful Journey to Smarter Investing
Trend following, at its core, is a strategy where investors buy an asset when it's going up and sell when it’s going down. But unlike panic-driven investors who sell at the worst possible moment, trend followers adhere to a rules-based approach in an attempt to remove emotion from the equation.
Understanding the Stock–Bond Correlation
With over nearly 150 years of data, the study finds that when inflation and interest rates rise, stocks and bonds tend to move together, reducing diversification benefits. This has critical implications for portfolio construction and risk management.