Younger and less-wealthy individuals are more prone to increasing their exposure to riskier assets in low-interest environments. Investors experiencing losses are more likely to seek higher yields.
The empirical research (for example, here, here, here and here) on insider trading demonstrates that insider transactions have significant predictive power for future stock returns [...]
Over 75% of the cross-sectional variation in P/E ratios is driven by future return differences, not growth expectations. This challenges many common asset pricing models and changes how investors should think about value, growth, and long-term return forecasting.
This study investigates whether firms' divestitures of pollutive assets genuinely contribute to environmental sustainability or merely serve as greenwashing tactics.
Momentum investing remains a viable strategy. However, the way you construct and manage your momentum portfolio matters greatly.
Increased executive effort correlates with positive earnings surprises, higher cumulative abnormal returns post-earnings announcements, and narrower credit default swap spreads. Moreover, portfolios constructed based on changes in executive effort demonstrate significant risk-adjusted returns, underscoring the tangible value of diligent leadership.
The structure of investor syndicates—hierarchical or flat—significantly impacts the flow of information and investment decisions. In hierarchical structures, differentiated incentives can lead to persuasive cascades, while flat structures promote truthful information sharing.
Christian Goulding and Campbell Harvey, authors of the study "Investment Base Pairs," proposed a groundbreaking framework for portfolio construction that challenges traditional approaches in modern finance. Their research focused on leveraging cross-asset information to optimize investment strategies and improve returns across diverse asset classes. Here's an overview of their investigation, key findings, and takeaways for investors and advisors.
In the evolving landscape of financial technology, innovative methods are emerging to assess creditworthiness. One such approach involves analyzing borrowers' facial expressions during loan applications to predict delinquency risk. This study explores this novel intersection of psychology, machine learning, and finance.
Profitability subsumes all of the quality factor, explaining both the performance of the strategies the investment industry market and the factors that academics employ—none of the quality factors generated significant positive alpha relative to profitability, the other Fama and French factors, and momentum.
This article explores how researchers forecast market returns by aggregating expected returns from individual stocks.
Let’s break down how to build a robust factor portfolio—without getting lost in the weeds. We investigate which equity factors have the strongest historical returns and diversification benefits from a long-only perspective.
This article explores how researchers forecast market returns by aggregating expected returns from individual stocks.
The financial research literature has found that the performance of assets (and factors) can vary substantially across regimes - factor premiums can be regime dependent. Unfortunately, the real-time identification of the current economic regime is one of the biggest challenges in finance.
This article explores the difference between tradable and on-paper (theoretical) risk factors in investing. Risk factors are strategies that help explain stock market returns, but many work only in theory and not in real life.
The main benefit of constructing industry momentum portfolios based on standard ICS is that it is straightforward and reproducible. However, that benefit may come at the cost of accuracy and oversimplification of complex industry relationships between companies.
Investing isn’t about being mostly right. In fact you can be mostly wrong and beat portfolios that were mostly right! Today, we’ll explore how investors can potentially improve portfolio outcomes by targeting two seemingly contradictory but deeply complementary systems as outlined in the latest Mauboussin-Callahan paper, Probabilities & Payoffs: The Practicality and Psychology of Expected Value. But understanding this counterintuitive reality requires a shift in mindset—one that embraces uncertainty and focuses on the power of diversification.
When information about a company comes out gradually, investors might not react strongly, leading to momentum. Other factors, like how a company's value is perceived, also play a role, but to a lesser extent.
For equity investors there have been two major narratives over the last 17 calendar year period 2008-2024. The first is that US stocks have far outperformed international stocks. The other narrative has been the outperformance of growth stocks relative to value stocks.
The empirical research we have reviewed shows that the (hidden) costs of index construction and rebalancing policies to investors are about 10 times the expense ratios.
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