Factor Investing

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Factor Investors Beware: Positive SMB May Not Mean You Own Small-Caps

By | 2017-11-10T10:25:36+00:00 November 10th, 2017|Factor Investing, Research Insights, Size Investing Research|

Regression analysis is used all the time to assess how a portfolio "loads" on certain factors. The most common factor loadings examined are the market, size, value, and momentum factors. This can be an informative [...]

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Do Portfolio Factors or Characteristics Drive Expected Returns?

By | 2017-10-31T10:09:59+00:00 October 31st, 2017|Factor Investing, Research Insights, Value Investing Research|

This article examines a somewhat over-looked, but important, discussion that raged among academic researchers in the late 1990's and early 2000's. The topic: factors versus characteristics. What do you mean, "Factors versus characteristics?" We often [...]

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Want to Learn More About Factor Investing? Read This.

By | 2017-10-26T10:23:15+00:00 October 26th, 2017|Factor Investing, Research Insights, Interviews, Value Investing Research, Momentum Investing Research, $mtum, $vlue|

Replicating Anomalies is arguably a "must read" for anyone who thinks about factor investing and is looking to improve their understanding of the space. Lu Zhang, and his colleagues, Kewei Hou and Chen Xue, spent [...]

Takeaways from a Non-PHD who Powered Through a 144-page Factor Investing Paper

By | 2017-10-25T15:24:19+00:00 October 25th, 2017|Factor Investing, Research Insights|

Wes recently challenged me with a unique proposition: Hey Ryan, read through this Replicating Anomalies paper and tell me what you think. Its a bit long, but I'm curious to hear your thoughts. Well, by [...]

Academic Research Insight: Stick to the Fundamentals and Discover Your Industry Peers

By | 2017-10-23T08:01:14+00:00 October 23rd, 2017|Factor Investing, Basilico, Academic Research Insight, Research Insights, Value Investing Research|

Stick to the Fundamentals and Discover Your Peers Jean Overgaard Knudsen, Simon Kold and Thomas Plenborg A version of this paper can be found here Want to read our summaries of academic finance papers? Check out [...]

Trend-Following: A Deep Dive Into A Unique Risk Premium

By | 2017-10-18T10:56:41+00:00 October 18th, 2017|Factor Investing, Trend Following, Research Insights|

Trend-following strategies have historically been laughed at via the modern academic finance research community. Having first-hand knowledge of that community, we can verify that academic researchers are humans like the rest of us (we checked, [...]

Replicating Anomalies

By | 2017-11-08T11:34:27+00:00 October 13th, 2017|Factor Investing, Research Insights, Value Investing Research, Momentum Investing Research|

Academic research is amazing and incredibly useful for helping us better understand the complex world in which we live. In fact, academic research has literally rewired my brain at times. However, research isn't perfect and [...]

ETF Product Development: Past, Present, and Future

By | 2017-10-04T11:09:41+00:00 October 4th, 2017|Factor Investing, Active and Passive Investing, $mtum, ETF Investing|

On October 1st, 1908 Henry Ford introduced the Model T to the world. The power of the Model T was that it democratized the automobile so the average working-class person could afford a car for [...]

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 | 2017-10-16T08:09:54+00:00 September 13th, 2017|Factor Investing, 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 | 2017-10-06T18:16:34+00:00 June 22nd, 2017|Factor Investing, Research Insights, Key Research|

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 | 2017-11-09T11:48:18+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|


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?