Factor Investing

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|Factor Investing, Research Insights, 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.

The Value Factor and Deleveraging

By |January 13th, 2023|Factor Investing, Larry Swedroe, Research Insights, Value Investing Research|

How do you separate the signal from the noise? To have confidence that a factor premium, or strategy, isn’t just the result of data mining - a lucky/random outcome - we recommended that you should require evidence that the premium has been not only persistent over long periods of time and across economic regimes, but also pervasive across sectors, countries, geographic regions and even asset classes; robust to various definitions (for example, there has been both a value and a momentum premium using many different metrics); survives transactions costs; and has intuitive risk- or behavioral-based explanations for the premium to persist.

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