Enhancing Momentum Strategies
Momentum investing remains a viable strategy. However, the way you construct and manage your momentum portfolio matters greatly.
Concentrated Stock Risk, Tax Drag, and a Smarter Path Forward.
Investors with concentrated stock positions face a frustrating paradox: stay exposed to high single-stock risk or trigger steep capital gains taxes by selling. But what if there were a third option—one that preserved wealth, enhanced diversification, and maintained tax efficiency? That’s the vision behind the strategic partnership between Alpha Architect and Cache. Together, we’re working to reshape the way sophisticated investors and advisors approach concentrated equity positions—making advanced tools more accessible, transparent, and investor-friendly.
The Hidden Effort Problem: Work more and get better results?
Increased executive effort correlates with positive earnings surprises, higher cumulative abnormal returns post-earnings announcements, and narrower credit default swap spreads. Moreover, portfolios constructed based on changes in executive effort demonstrate significant risk-adjusted returns, underscoring the tangible value of diligent leadership.
What Is an Exchange Fund? A Way to Diversify Without Triggering a Tax Bill
Investors with large, concentrated stock positions often find themselves stuck between a rock and a hard place. On one hand, holding on to a single stock position exposes them to unnecessary risk. On the other, selling that stock can mean paying a hefty capital gains tax bill. What most investors don’t realize is that there’s a third option—a relatively obscure yet entirely legitimate strategy that can help diversify away single-stock risk without triggering immediate taxes: exchange funds.
Raising Capital from Investor Syndicates with Strategic Communication
The structure of investor syndicates—hierarchical or flat—significantly impacts the flow of information and investment decisions. In hierarchical structures, differentiated incentives can lead to persuasive cascades, while flat structures promote truthful information sharing.
Unlocking Cross-Asset Potential: A New Approach to Portfolio Construction
Christian Goulding and Campbell Harvey, authors of the study "Investment Base Pairs," proposed a groundbreaking framework for portfolio construction that challenges traditional approaches in modern finance. Their research focused on leveraging cross-asset information to optimize investment strategies and improve returns across diverse asset classes. Here's an overview of their investigation, key findings, and takeaways for investors and advisors.
Working More to Pay the Mortgage
The study examines how households adjust their labor supply in response to changes in mortgage payments due to fluctuating interest rates.
A Good Sketch is Better than a Long Speech
In the evolving landscape of financial technology, innovative methods are emerging to assess creditworthiness. One such approach involves analyzing borrowers' facial expressions during loan applications to predict delinquency risk. This study explores this novel intersection of psychology, machine learning, and finance.
Profitability Retrospective: Key Takeaways for Investors
Profitability subsumes all of the quality factor, explaining both the performance of the strategies the investment industry market and the factors that academics employ—none of the quality factors generated significant positive alpha relative to profitability, the other Fama and French factors, and momentum.
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.