Similar to some better-known factors like size and value, time-series momentum is a factor which has historically demonstrated above-average excess returns. Time-series momentum, also called [...]
Wes asked that I contribute to the ongoing debates regarding the construction of value and momentum portfolios. There are three key research pieces on [...]
J.P. Morgan researchers, Marko Kolanovic and Zhen Wei, produced an incredibly detailed report on all aspects of momentum (one of our favorite topics!) Here is [...]
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 [...]
Factor investing, and the associated intellectual battles, have raged for decades in academic finance journals. However, now that factor investing has gone mainstream via ETFs, [...]
On most mainstream finance websites, a good chunk of the stories discuss the FED and where interest rates are going. Intuitively, this makes sense: The [...]
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, [...]
Value and Momentum Investing -- our two favorite factors. We talk about these phenomena on our blog all the time, and have given both rational and behavioral explanations as to why these may occur. However, very few in the finance community are direct investors into Value and Momentum securities -- the individual stocks (or bonds) themselves. Many use ETFs or mutual funds to gain access to these factors. Institutions generally do the same, either investing in hedge funds or managed accounts. This is delegated asset management, whereby one delegates the decision of the security selection onto a third-party manager. A by-product of delegation is that from time to time, the third-party manager must be assessed. While many may claim the process is most important, the performance is always taken into consideration. So what happens to a Value manager who is overweight the wrong industry? While the manager may be following the same process discussed ex-ante, the ex-post assessment may be that the manager needs to be fired due to underperformance.
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 [...]
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 [...]
If you ask your typical long-only investor (or financial advisor) how momentum is doing this year they'll likely say, "Amazing!" This statement will almost surely [...]
Any frequent reader of our blog knows we are fans of momentum investing. At this point, investment professionals should know that momentum historically works, that momentum [...]
Our Global Value Momentum Trend Index ("GVMT" or "GVMT Index") is a globally diversified equity strategy that leverages trend-following to manage tail-risks. The strategy can [...]
The Oracle of Omaha just commented on the Chinese stock market in this year's Berkshire's annual meeting: ...Markets have a casino characteristic that has a [...]
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 [...]
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. [...]
David Smith, Na Wang, Ying Wang and Edward Zychowicz contribute to the literature on momentum with their paper, “Sentiment and the Effectiveness of Technical Analysis: Evidence from the Hedge Fund Industry,” which was published in the December 2016 issue of the Journal of Financial and Quantitative Analysis. Their work examines how investor sentiment affects the effectiveness of technical analysis strategies (which include the use of moving averages as well as momentum) used by hedge funds (which are considered sophisticated investors). The study was motivated by prior research that has focused on “investor sentiment,” which is the propensity of individuals to trade on noise and emotions rather than facts. Sentiment causes investors to have beliefs about future cash flows and investment risks that aren’t justified. Two researchers, Malcolm Baker and Jeffrey Wurgler, constructed an investor sentiment index based on six measures: trading volume as measured by NYSE turnover; the dividend premium (the difference between the average market-to-book ratio of dividend-payers and non-payers); the closed-end fund discount; the number and first-day returns of IPOs; and the equity share in new issues. Data is available at through Wurgler and New York University.
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 [...]
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, [...]
Jack did a nice recap on a momentum paper last week that looks at using fundamentals (revenue volatility, low cost of goods, and B/M) to help identify the best price momentum stocks. This paper sounds similar to the paper Jack reviewed, but there is a key difference: the researchers are looking at the momentum of the fundamentals, not the absolute value of the fundamentals. The authors compile a fundamental momentum variable by calculating the moving averages of 7 elements: return on equity return on assets earnings per share accrual-based operating profitability cash-based operating profitability gross profitability net payout ratio
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