The Best Strategies for Dealing with Inflation? Factors and Trend-Following

By |January 24th, 2022|Research Insights, Factor Investing, Trend Following, Basilico and Johnsen, Academic Research Insight, Tactical Asset Allocation Research|

Inflation -- what's that? ... It has been quite a while since inflation has been considered a problem. Today, however, the angst surrounding the possibility of a resurgence in inflation is real and “top of mind” for investors.   If the current fear becomes a reality, how should investors react? What strategies and asset classes perform well in a rising inflationary environment? If inflation does resurge beyond a temporary phase, how should investors restructure or reposition their portfolios? The purpose of this article is to provide context for those decisions.

Empowering Investors Through Education Actually Works!

By |January 18th, 2022|Research Insights, Basilico and Johnsen, Academic Research Insight, Behavioral Finance|

Empowering investors through education is a foundational tenet of our firm and a big reason why we write these posts. The article we cover here is a meta-analysis 76 randomized studies on the impacts and design of financial education, a topic we've hit on before. It' almost cliche now to hear parents and educators demand schools take the initiative to make financial education a high priority. However, it's reasonable to ask, does financial education even work?

Factor Investing in Sovereign Bond Markets

By |January 13th, 2022|Research Insights, Factor Investing, Larry Swedroe, Academic Research Insight, Fixed Income, Value Investing Research, Momentum Investing Research|

The reported results we covered have important implications for investors in terms of portfolio construction, risk monitoring, and manager selection. Because these common factors explain almost all the returns of bond portfolios, investors should construct their bond portfolios using low-cost, passively (systematically) managed funds with these factors in mind and then carefully monitor their exposure to these systematic risks.

Asset Allocation and Private Market (i.e. illiquid) Investing

By |January 10th, 2022|Private Equity, Liquidity Factor, Research Insights, Factor Investing, Basilico and Johnsen, Academic Research Insight, Tactical Asset Allocation Research|

Allocations to illiquid assets have become increasingly popular requiring asset managers to consider portfolio-wide liquidity characteristics. Although determining the price of illiquidity is a challenge for investors, the construction of a portfolio that includes liquidity constraints can be even more daunting. How do we optimize asset allocation with liquidity as a significant constraint on the portfolio?

What Do Mutual Fund Investors Really Care About?

By |January 6th, 2022|Research Insights, Larry Swedroe, Academic Research Insight, Behavioral Finance, ETF Investing|

Are individuals just naïve performance chasers, unaware of the financial literature, or are they sophisticated investors? Pretty much.

Interesting Insights into How Endowments Invest

By |January 3rd, 2022|Research Insights, Basilico and Johnsen, Academic Research Insight, Tactical Asset Allocation Research|

Despite their popularity and the ease of access to university-based endowments, there is little in the academic literature about the history of endowment investing. In this article, the authors aim at filling this gap.

Understanding Momentum Investing

By |December 30th, 2021|Research Insights, Factor Investing, Larry Swedroe, Academic Research Insight, Momentum Investing Research|

The main takeaway for investors is that Kelly, Moskowitz, and Pruitt demonstrated that past return characteristics are strongly predictive of a stock’s realized exposures to common risk factors, providing direct evidence that price trend strategies are in part explainable as compensation for common factor exposures—past returns predict betas on factors and those factors have high average returns.

The Illiquidity Discount is an Opportunity Cost

By |December 28th, 2021|Liquidity Factor, Research Insights, Factor Investing, Basilico and Johnsen, Academic Research Insight|

Private investment opportunities seem to have been filling investors' portfolios. These investment vehicles come with a discount to the assets value to pay investors for taking on illiquidity risk. Readers of this article are treated to the development of a theory and a practical model that quantifies the illiquidity discount.

Do Mutual Funds Increase Disclosure Complexity to Hide Fees?

By |December 22nd, 2021|Financial Planning, Research Insights, Basilico and Johnsen, Academic Research Insight, Behavioral Finance, Corporate Governance|

Do mutual funds create unnecessarily complex disclosures and fee structures to obfuscate weak net performance? Yes.

What percentage of COO/CCO/CTOs in Finance are Women?

By |December 17th, 2021|Research Insights, Women in Finance Know Stuff, Basilico and Johnsen, Academic Research Insight|

This is the second article in a series on women in leadership roles. To dig deeper into where women are in finance we analyzed 36,499 functional positions for the COO, CCO, and CTO roles in 29 countries, including 25 developed markets and Brazil, Russia, India, China (the “BRICs”). All public and private firms in the finance industry were included regardless of market capitalization or other characteristics.

The Relationship Between the Value Premium and Interest Rates

By |December 16th, 2021|Research Insights, Factor Investing, Larry Swedroe, Academic Research Insight, Value Investing Research, Tactical Asset Allocation Research|

We've been suffering through the deepest and longest drawdown in values history. Looking for a scapegoat to explain the lackluster performance many have pointed to low interest rates as the root cause of the underperformance. The question is have interest rates impacted value in the past?

ESG Investing: Dissecting Green Returns

By |December 13th, 2021|ESG, Research Insights, Basilico and Johnsen, Academic Research Insight, Value Investing Research, Momentum Investing Research|

In theory green stocks should have lower expected returns, this however, is not what we've seen. So the question is what has caused the outperformance of green stocks? And has that outperformance cost value investors their returns?

Value and Momentum Factors? Naw, Focus on the Music Factor!

By |December 6th, 2021|Relative Sentiment, Research Insights, Basilico and Johnsen, Academic Research Insight, Behavioral Finance|

Can market sentiment be derived from the tunes that your fellow countrymen are listening to? According to the research summarized here you'll find that there is important market information buried in the listening habits of Spotify users.

You Thought P-Hacking was Bad? Let’s talk about “Non-Standard Errors”

By |December 3rd, 2021|Empirical Methods, Research Insights, Academic Research Insight|

Most readers are familiar with p-hacking and the so-called replication crisis in financial research (see here, here, and here for differing views). Some claim that these research challenges are driven by a desire to find 'positive' results in the data because these results get published, whereas negative results do not get published (the evidence backs these claims).

But this research project identifies and quantifies another potential issue with research -- the researchers themselves! This "noise" created by differences in empirical techniques, programming language, data pre-processing, and so forth are deemed "non-standard-errors," which may contribute even more uncertainty in our quest to determine intellectual truth. Yikes!

Size, Value, Profitability, and Investment Factors in International Stocks

By |December 2nd, 2021|Research Insights, Factor Investing, Larry Swedroe, Academic Research Insight, Value Investing Research, Size Investing Research|

Using data on 65,000 stocks from 23 countries, they evaluated the performance of the Fama-French factors, examining the factor premia in global markets to verify their robustness across different company size categories and geographical regions. Their data sample covered the period 1987-2019.

Can Prospect Theory Explain the Value and Momentum Factors?

By |November 29th, 2021|Research Insights, Basilico and Johnsen, Academic Research Insight, Behavioral Finance|

Today we summarize an investigation into the usefulness of Prospect Theory and Narrow Framing to evaluate whether a new model can help explain 22 prominent market anomalies.

Should We Never Invest in Individual Stocks?

By |November 26th, 2021|Research Insights, Guest Posts, Academic Research Insight, Behavioral Finance|

Due to the surprising headline that treasury bills seemingly outperform stocks, practitioners are starting to ask: Should I invest in individual stocks?

Chasing Low Beta Loses Alpha

By |November 19th, 2021|Research Insights, Factor Investing, Larry Swedroe, Academic Research Insight, Low Volatility Investing|

One of the big problems for the first formal asset pricing model developed by financial economists, the CAPM, was that it predicts a positive relationship between risk and return. However, empirical studies have found the actual relationship to be basically flat, or even negative. Over the last 50 years, the most “defensive” (low-volatility or low-beta, low-risk) stocks have delivered both higher returns and higher risk-adjusted returns than the most “aggressive” (high-volatility, high-risk) stocks.

Do Financial Advisors Transmit their Biases to Clients? Yes.

By |November 15th, 2021|Financial Planning, Research Insights, Basilico and Johnsen, Academic Research Insight|

Are there similarities in the trading behavior of financial advisors and their clients? Are fees paid by advisors and clients similar too? Are advisers overconfident in their skill at identifying active managers and in their ability to outperform passive investments?

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