Now that the Federal Reserve has begun the process of raising interest rates, and has announced their intention to begin to unwind their policy of quantitative easing (reducing the amount of bonds in their portfolio, [...]
As we have mentioned before, here, here and here, there is overwhelming evidence that the number of stock anomalies in the universe is much lower than originally thought. Most of the previous research papers attempt to [...]
In their seminal 1993 paper, “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency,” Narasimhan Jegadeesh and Sheridan Titman reported significant returns to buying winners and selling losers in the U.S. equity [...]
A common question asked in the factor investing field is the following -- "how much of the model's performance is driven by sector allocations, and how much is driven by security selection?" Our answer is to simply buy Value stocks or Momentum stocks, regardless of sector constraints. Why? Well a nice anecdote (but not data) is that investing in "cheap" technology stocks was not a great idea in the internet bubble crash.
Title: Factor Investing in the Bond Market Authors: Patrick Houweling and Jeroen van Zundert Publication: Financial Analysts Journal, Vol. 3 No. 2, 2017 (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2516322) What are the research questions? Can the concepts contained in equity [...]
I will be talking on the Factor Investing panel at the upcoming Evidence-Based Investing Conference in Dana Point, CA next Sunday –Tuesday. I am excited for the opportunity to chat, and figured I would highlight [...]
The Holy Grail for mutual fund investors is the ability to identify in advance, which of the active mutual funds (or ETFs nowadays) will outperform in the future. The evidence suggests this task is almost [...]
If you've been reading our blog for a number of years you're 1) probably a finance geek, and you're 2) probably tired of us discussing the following themes: Value investing: buy cheap stocks (see our [...]
Title: FACTOR BASED INVESTING: THE LONG TERM EVIDENCE Authors: ELROY DIMSON, PAUL MARSH, AND MIKE STAUNTON Publication: THE JOURNAL OF PORTFOLIO MANAGEMENT, 2017, SPECIAL ISSUE (version here) What are the research questions? [...]
There are a number of recent studies that propose a more rigorous criteria for evaluating the practical significance of factors published in academic research journals. First, Harvey, Liu, and Zhu (2015) argue that a t-stat of [...]
Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. The momentum effect [...]
ETFs and factor investing are on the tip of everyone's tongue these days. Factor investing is being couched as a "new" thing, despite the fact that institutional investors have been deploying these strategies for years. (See this working paper discussing the effective use of smart beta strategies by institutional investors.) However, because factor investing is now directly accessible via ETFs, those who are unfamiliar with factor investing are asking questions about how these "new" funds will affect the market. Two burning questions many investors have: What is the overall capacity of smart beta funds? What is the capacity of momentum-based funds, specifically?
Tomorrow I'll be sitting with Pat O'Shaughnessy and Ben Johnson to discuss "Straight Talk About Smart Beta." Here is a link to the big Morningstar event. In preparation for our discussion we were spitballing ideas [...]
Value and Momentum investing have been studied across many different markets and asset classes (Asness et al 2013) and have shown to be effective factors. A working paper, "Frontier Stock Markets: Local vs Global Factors" [...]
We've talked extensively about the concepts of active share and active fee, which aren't flawless metrics, but they have elevated the discussion around identifying and understand the closet indexing phenomenon. To be clear, closet indexing [...]
A few years ago, the profitability "quality" factor was originally proposed by Robert Novy-Marx. Here is a snippet from the abstract of the paper: Profitability, measured by gross profits-to-assets, has roughly the same power as [...]
Each year I teach my "seminar in investments" course at Drexel, which consists of the Masters in Finance students and a handful of geeky MBA students. The first few weeks of the course involve an [...]
Johnny Paycheck has a great country song centered around the following lyric: Take this job and shove it...I ain't working here no more... Campbell Harvey, in the 2017 AFA Presidential Address, elaborates an analogous comment [...]
Our epic piece on factors from a few weeks ago is still ringing in our own ears: Are factors even real? Or just data-mining? The conclusion: who knows. We need more data. And more data [...]
One of the popular investing truisms is the following (inspired by Bill Sharpe): For somebody to beat the market (win) someone else has to lag the market (lose). This becomes an even more daunting (efficient [...]
