Factor Investing

The Role of the Secular Decline in Interest Rates in Asset Pricing Anomalies

By |November 10th, 2022|Research Insights, Value Investing Research, Macroeconomics Research|

Jules van Binsbergen, Liang Ma and Michael Schwert, authors of the September 2022 study “The Factor Multiverse: The Role of Interest Rates in Factor Discovery,” posed an interesting question: Are the findings of at least some of the reported anomalies the direct result of the 40-year secular decline in global interest rates and thus not really anomalies?

Market Risk and Speculative Factors

By |November 3rd, 2022|Research Insights, Factor Investing, Larry Swedroe|

Soroush Ghazi and Mark Schneider authors of the August 2022 study “Market Risk and Speculation Factors” decomposed the excess market return (the equity risk premium) into speculative (in the simple sense that it is negative, reflecting a premium investors pay to hold assets that are more subject to speculative demand) and non-speculative, or risk (in the simple sense that it is positive, a necessary characteristic for a factor to reflect compensation for risk) components.

Momentum Factor Investing: 30 years of Out of Sample Data

By |October 31st, 2022|Research Insights, Basilico and Johnsen, Academic Research Insight, Momentum Investing Research|

In this article, the author examines the research published over the last 30 years on momentum and its theoretical credibility. One of the original momentum articles was published by Jegadeesh and Titman in 1993, and is considered the seminal work on the topic. The research review contained in this publication begins with the 1993 work and confines itself to only the highest quality journals among the plethora of work that has been published on momentum.

Momentum Investing: How Did Momentum Investing Perform After the Previous Two Valuation Peaks?

By |September 16th, 2022|Factor Investing, Research Insights, Momentum Investing Research|

How did Momentum investing perform after the previous two valuation peaks?

This article answers this question.

Key finding: Momentum investing also performed well following episodes when value stocks were cheap. Of course, momentum portfolios did not perform nearly as well as value portfolios, but they did still beat the generic market.

We dig into the details below.

The Short-Duration Equity Premium

By |September 15th, 2022|Research Insights, Factor Investing, Larry Swedroe, Academic Research Insight, Low Volatility Investing|

We examine the short-duration premium using pre-scheduled economic, monetary policy, and earnings announcements. We provide high-frequency evidence that duration premia associated with revisions of economic growth and interest rate expectations are consistent with asset pricing models but cannot explain the short-duration premium. Instead, we show that the trading activity of sentiment-driven investors raises prices of long-duration stocks, which lowers their expected returns, and results in the short-duration premium. Long-duration stocks have the lowest institutional ownership, exhibit the largest forecast errors at earnings announcements, and show the highest mispricing scores.

Brand Values and Long-Term Stock Returns

By |September 8th, 2022|Intangibles, Smarter in 10 Minutes, Factor Investing, Larry Swedroe, Academic Research Insight|

An equal-weighted portfolio of Best Brands (BBs) in the U.S. earns an excess return of 25 to 35 bps per month during the period 2000-2020. This result is remarkably robust across various factor models and therefore is not driven by exposure to common (risk) factors. The excess returns of the BB portfolio are not due to firm characteristics, industry composition, or small-cap stocks. We provide evidence suggesting that expensing investments in brands (instead of capitalizing them) and the tendency to underestimate the effect of brand name on generating future earnings are two mechanisms contributing to the excess returns.

How You Sort Matters in Sorting Factor Portfolios

By |September 1st, 2022|Research Insights, Factor Investing, Larry Swedroe, Academic Research Insight|

Non-standard errors capture uncertainty due to differences in research design choices. We establish substantial variation in the design choices made by researchers when constructing asset pricing factors. By purposely data mining over two thousand different versions of each factor, we find that Sharpe ratios exhibit substantial variation within a factor due to different construction choices, which results in sizable non-standard errors and allows for p-hacking. We provide simple suggestions that reduce the average non-standard error by 70%. Our study has important implications for model selection exercises.

Go to Top