Factor Investing

//Factor Investing

Factor Timing Investigation: Interest Rates, Value Spreads, and Factor Premiums

By | 2017-09-22T09:34:38+00:00 September 22nd, 2017|Factor Investing, Larry Swedroe, Research Insights, Guest Posts|

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, [...]

What Happens When you Data Mine 2 million Fundamental Quant Strategies

By | 2017-09-13T11:37:57+00:00 September 13th, 2017|Factor Investing, Academic Research Insight, Research Insights|

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 [...]

Short Term Momentum and Long Term Reversals Can Coexist

By | 2017-08-28T10:27:32+00:00 August 30th, 2017|Factor Investing, Larry Swedroe, Research Insights, Other Insights, Momentum Investing Research|

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 [...]

Portfolio Allocations using Enterprise Multiples (and others)

By | 2017-08-19T13:44:34+00:00 August 22nd, 2017|Factor Investing, Value Investing Research|

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.

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Academic Research Insight: Can Bond Portfolios Be “Factorized”?

By | 2017-08-18T17:11:05+00:00 August 14th, 2017|Factor Investing, Basilico, Research Insights|

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 [...]

Factor Investing: Evidence Based Insights

By | 2017-08-18T17:05:14+00:00 June 22nd, 2017|Factor Investing, Research Insights|

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 [...]

Active Share: Does it Predict Fund Performance?

By | 2017-08-18T17:10:54+00:00 June 15th, 2017|Factor Investing, Larry Swedroe, Active and Passive Investing|

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 [...]

The Value Momentum Trend Philosophy

By | 2017-08-18T16:55:07+00:00 June 6th, 2017|Factor Investing, Trend Following, Research Insights, Key Research, Value Investing Research, Momentum Investing Research|

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 [...]

Academic Research Insight: Factor Investing Over the Long Run

By | 2017-08-18T17:11:02+00:00 May 30th, 2017|Factor Investing, Basilico|

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? [...]

Do Trading Costs Destroy Factor Investing?

By | 2017-08-18T17:06:16+00:00 May 10th, 2017|Factor Investing, Basilico, Research Insights|

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 [...]

Swedroe Spotlight: Enhancing Momentum Strategies Via Idiosyncratic Momentum

By | 2017-08-18T16:56:29+00:00 May 2nd, 2017|Factor Investing, Larry Swedroe, Research Insights, Guest Posts, Momentum Investing Research|

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 [...]

The Capacity of Smart Beta Funds — Larger than Previously Thought?

By | 2017-08-18T16:55:44+00:00 April 28th, 2017|Factor Investing, Research Insights, ETF Investing|

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?

Academic Factor Exposure Versus Fund Factor Exposure

By | 2017-08-18T17:11:07+00:00 April 26th, 2017|Factor Investing, Tool Updates|

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 in Frontier Stock Markets

By | 2017-08-18T16:53:54+00:00 April 18th, 2017|Factor Investing, Value Investing Research, Momentum Investing Research|

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" [...]

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Visual Active Share: A Tool to Help Investors Make Better Decisions

By | 2017-08-18T16:52:56+00:00 April 6th, 2017|Factor Investing, Research Insights, Tool How-To-Guides, Tool Updates, Value Investing Research, Investor Education, Momentum Investing Research|

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 [...]

Looking to Improve your Factor Investing? Examine the Trend of Profits

By | 2017-08-18T17:01:20+00:00 April 4th, 2017|Factor Investing, Research Insights, Value Investing Research, Momentum Investing Research|

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 [...]

Factor Investing: The Fama French 5-Factor Model on Chinese A-Shares

By | 2017-08-18T17:05:13+00:00 March 31st, 2017|Factor Investing, Research Insights|

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 [...]

Evidence-Based Investing? Take that Alpha and Shove It.

By | 2017-08-18T17:05:22+00:00 March 3rd, 2017|Factor Investing, Research Insights|

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 [...]

Will ETFs Destroy Factor Investing? Nope.

By | 2017-08-18T16:52:04+00:00 February 17th, 2017|Factor Investing, Research Insights, Guest Posts, Value Investing Research, Momentum Investing Research, Low Volatility Investing, Size Investing Research|

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 [...]