Research Insights

Comparing past and present inflation rates can be tricky

By |March 20th, 2023|Inflation Investing, Research Insights, Basilico and Johnsen, Academic Research Insight|

The objective of this article is to build better estimates of CPI headline and core inflation values so inflation comparisons over time are more reliable.  The run-up in inflation we are currently experiencing is difficult to contextualize because it is inconsistent with past practices, weights on expenditures have changed, and the treatment of housing costs.

Are Short Covering Trades Informative?

By |March 10th, 2023|Research Insights, Factor Investing, Larry Swedroe|

The importance of the role played by short sellers has received increasing academic attention in recent years. Short sellers help keep market prices efficient by preventing overpricing and the formation of price bubbles in financial markets. Market efficiency is important because an efficient market allocates capital efficiently. If short sellers were inhibited from expressing their views on valuations, securities prices could become overvalued and excess capital would be allocated to those firms.

Does International Diversification Work?

By |February 28th, 2023|Research Insights, Factor Investing, Basilico and Johnsen, Academic Research Insight, Tactical Asset Allocation Research|

In this article, the authors examine the research on the benefits of international diversification. Some argue that because equity markets generally crash simultaneously, there are no benefits to having equity diversification. The evidence from this paper rejects this hypothesis.

Should investors be indifferent to dividend impact on stock returns?

By |February 3rd, 2023|Dividends and Buybacks, Research Insights, Larry Swedroe|

In their 1961 paper, “Dividend Policy, Growth, and the Valuation of Shares,” Merton Miller and Franco Modigliani famously established that dividend policy should be irrelevant to stock returns. As they explained it, at least before frictions like trading costs and taxes, investors should be indifferent to $1 in the form of a dividend (causing the stock price to drop by $1) and $1 received by selling shares. This must be true, unless you believe that $1 isn’t worth $1. This theorem has not been challenged since, at least in the academic community.

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