DIY Trend-Following Allocations: July 2024
Full exposure to domestic equities. Full exposure to international equities. Partial exposure to REITs. Full exposure to commodities. Partial exposure to intermediate-term bonds.
How do macroeconomic announcements impact household spending?
What are the primary factors contributing to the steep and persistent decline in U.S. consumption growth during the Great Financial Crisis of 2008-2009?
U.S. Companies Have Outperformed Japanese Companies, or Have They?
While both the S&P 500 and the Nikkei indices have recently hit all-time highs, the valuation and balance sheet data we have reviewed indicate that the downside risks in Japanese stocks appear to be far less than the risks in U.S. stocks. Evidence such as this helps explain why legendary investor Warren Buffett has been buying Japanese stocks.
Smart rebalancing for factor strategies
Trading costs, discontinuous trading, missed trades, and other frictions, along with asset management fees can cause a shortfall between live and paper portfolios. The focus of this paper is to test an effective rebalancing method that prioritizes trades with the strongest signals to capture more of the factor premia while reducing turnover and trading costs.
When Shorts Don’t Short
Low short positions come from positive public news, while negative news can drive average short or extremely high short positions
How to Track Retail Investor Activity in TAQ
This paper explores the effectiveness of the BJZZ algorithm, developed by Boehmer, Jones, Zhang, and Zhang (2021), in identifying and signing retail trades executed off exchanges with subpenny price improvements.
Private Equity May Not Be the Diversifier We Think (Due to Volatility Laundering), But Private Credit Could Be
Volatility laundering causes the risk-adjusted returns and the diversification benefits of private equity to be significantly overstated. However, the problem of volatility laundering is not a problem for all private investments, specifically not for high-quality, floating rate, private credit.
Complexity is a virtue in return prediction
Simple models severely understate return predictability compared to “complex” models in which the number of parameters exceeds the number of observations.
The Halo Effect Drives Demand for Sustainable and Impact Investments
Both investment motives and investment experience are important determinants for investors’ ability to assess (impact) investment opportunities. While investor preference can justify accepting a lower return as the cost of expressing their values, the halo effect should not play a role in making that assessment—both economic theory and empirical evidence should lead investors to expect lower returns on sustainable investments.
Global Factor Performance: June 2024
The following factor performance modules have been updated on our Index website.
DIY Trend-Following Allocations: June 2024
Do-It-Yourself trend-following asset allocation weights for the Robust Asset Allocation Index are posted here. (Note: free registration required) Request a free account here if you [...]
Financial literacy in Canada: Not Bad, Eh?
This study is important because it provides valuable insights into the current state of financial literacy in Canada, its relationship to retirement planning, and the factors that influence financial literacy outcomes.
Quality, Factor Momentum, and the Cross-Section of Returns
There is strong empirical evidence demonstrating that momentum (both cross-sectional and time-series) provides information on the cross-section of returns of many risk assets and has generated alpha relative to existing asset pricing models. Ma, Yang, and Ye’s findings provide another test of both robustness and pervasiveness, increasing our confidence that the findings of momentum in asset prices are not a result of data mining.
Does Diversity add value to asset management?
The research literature on diversity in asset management, while promising, is limited with respect to the breadth of the evidence produced to date. We don't really understand the broad-based benefits of diversity nor how diversity delivers value in asset management. How does it really work? Is it the university, the college major, gender, race, the work experience? That is where this study comes into play. The authors propose a unifying concept called homophily to analyze the impact of diversity in asset management using hedge funds as their laboratory. Sociology describes homophily as groups of people that share common characteristics such as beliefs, values, education, and so on. In a team setting those characteristics make communication and relationship formation easier. Further, a large body of research in sociology specifically documents the presence of homophily with respect to education, occupation, gender, and race. Luckily, management teams within hedge funds can be characterized by just those dimensions.
Momentum Everywhere, Even Cross-Country Factor Momentum
There is strong empirical evidence demonstrating that momentum (both cross-sectional and time-series) provides information on the cross-section of returns of many risk assets and has generated alpha relative to existing asset pricing models.
Postpandemic Inflation in Eleven Economies
This paper explores the applicability of the Bernanke-Blanchard (BB) model across diverse economies, revealing commonalities and differences in inflation dynamics post-pandemic.
Social Media: The Value of Seeking Alpha’s Recommendations
The finding that the recommendations from SA articles resulted in statistically significant risk-adjusted alphas (returns unexplained by conventional academic models using factors such as the market, size, value, momentum, profitability, and quality for equity portfolios) is surprising given that the empirical evidence shows how difficult it is for institutional investors such as mutual funds to show outperformance beyond the randomly expected (as can be seen in the annual SPIVA Scorecards) because of market efficiency.
How Volatility and Turnover Affect Return Reversals
Higher volatility is associated with faster, initially stronger reversals, while lower turnover is associated with more persistent, ultimately stronger reversals
Using Machine Learning Programs to Forecast the Equity Risk Premium
To date, the best metric we have for forecasting future equity returns and the ERP is current valuations. An interesting question is whether more complicated methods using newly developed machine learning models can provide superior forecasts.
Global Factor Performance: May 2024
The following factor performance modules have been updated on our Index website.