Intangibles and the Performance of the Value Factor
Systematic factor-driven value strategies have underperformed broad market indices (such as the S&P 500) over the past 15+ years. That has led many to question [...]
Estimating Long-Term Expected Returns
This study addresses a critical gap in financial forecasting by improving the accuracy of long-term expected return (E(R)) predictions. By evaluating various frameworks and proxies out-of-sample, free from biases like look-ahead bias, it provides more reliable methods for investors to make informed decisions about asset allocations.
Private Equity Versus Public Equity Returns
Cliffwater found that private equity allocations by state pensions produced a 11.0% net-of-fee annualized return over the 23-year period ending June 30, 2023. Over the same period the CRSP 1-10 Index (U.S. total market) returned 7.2% and the MSCI All Country World ex USA Index returned 4.4%.
Frog in the Pan Momentum: International Evidence
Underreaction to continuous news plays a key role in generating momentum internationally.
Global Factor Performance: December 2024
The following factor performance modules have been updated on our Index website.
Diversifying Trend Following Strategies Improves Portfolio Efficiency
Allocation to trend following can further improve the efficiency of their portfolio by also adding allocations to the other uncorrelated strategies, further reducing tail risks by reducing the dispersion of potential outcomes.
DIY Trend-Following Allocations: December 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 [...]
Time-Varying Drivers of Stock Prices
This paper examines the time-varying roles of subjective expectations in driving stock price and return variations.
Calendar Anomalies, Much Ado About Nothing
An anomaly is a pattern in stock returns that deviates from what is expected based on established financial theories or models. These patterns can sometimes [...]
Factors are global, respectable and repeatable
The propagation of factors actually reflect valid characteristics of the markets and market fluctuations.
Improving Low Volatility Strategies
The bottom line is that returns to the low volatility anomaly have only justified investing when low-volatility stocks were in the value regime, after periods of strong market performance, and when they excluded high-volatility stocks that have low short interest (providing clues as to how to improve its performance). This may be why live funds have been generating large negative alphas once we account for common factor exposures.
Financial Knowledge in Europe: Women Lag Men in their financial Literacy
This paper examines the level of financial literacy across the 27 EU member states, using data from the 2023 Flash Eurobarometer 525 survey.
The Explosive Growth of Private Credit: Is There a Bubble?
The growth rate of private credit has been so rapid (growing to nearly $2 trillion by the end of 2023, roughly ten times larger than it was in 2009), that concerns about there being a bubble have been raised.
Rethinking Asset Growth in Asset Pricing Models
Measures of asset growth add considerable explanatory power to asset pricing models, but wait, there’s a twist. The formulation for measuring asset growth in risk [...]
Markets Becoming More Efficient: The Disappearing Index Effect
Greenwood and Sammon’s findings of a disappearing index effect provides further support for the findings of McLean and Pontiff, Does Academic Research Destroy Stock Return Predictability? 2016. Once anomalies are well recognized by the market they decline and may even disappear, though limits to arbitrage can allow them to persist. Their findings also provide support for Andrew Lo’s The Adaptive Markets Hypothesis (2004). The bottom line is that markets are becoming more efficient, raising the hurdles for active managers to generate alpha.
Accessing Private Markets: What Does It Cost?
By quantifying how non-performance-based fees dominate the cost structure, this research questions whether current fee models effectively align with investor interests, which could influence future fee arrangements and industry standards.
Using Trading Volume to Optimize Portfolio Construction and Implementation
The authors of the research discussed developed a machine learning model that can accurately predict trading volume for individual stocks. They then demonstrated how this model can be used to construct a portfolio that outperforms a traditional market-cap weighted portfolio.
DIY Trend-Following Allocations: November 2024
Full exposure to domestic equities. Full exposure to international equities. Full exposure to REITs. No exposure to commodities. Full exposure to intermediate-term bonds.
Can Artificial Intelligence outsmart seasoned equity analysts?
If the task is to identify a firm’s true profitability, can AI outsmart seasoned analysts?
Academic Anomalies Formed After Information Events
The hurdles to adding alpha for active managers are getting higher—investment practitioners make use of it as soon as or shortly after it is available.