What Happens When you Data Mine 2 million Fundamental Quant Strategies
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 [...]
Short Term Momentum and Long Term Reversals Can Coexist
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 [...]
Portfolio Allocations using Enterprise Multiples (and others)
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.
Academic Research Insight: Can Bond Portfolios Be “Factorized”?
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 [...]
Trick Question: How is the Momentum Factor Performing YTD?
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 [...]
Avoiding Overpriced Winners: A Better Way to Capture the Momentum Premium?
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 [...]
Factor Investing: Evidence Based 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 [...]
Active Share: Does it Predict Fund Performance?
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 [...]
The Global Value Momentum Trend Philosophy
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 [...]
Academic Research Insight: Factor Investing Over the Long Run
Title: FACTOR BASED INVESTING: THE LONG TERM EVIDENCE Authors: ELROY DIMSON, PAUL MARSH, AND MIKE STAUNTON Publication: THE JOURNAL OF PORTFOLIO MANAGEMENT, [...]
The Value Premium: Risk or Mispricing?
One of the great debates in finance is whether the source of the value premium is risk-based or a behavioral anomaly. In our book, “Your [...]
Chinese Market Anomalies – The Factor Killer?
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 [...]
Do Trading Costs Destroy Factor Investing?
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. [...]
Swedroe Spotlight: Enhancing Momentum Strategies Via Idiosyncratic Momentum
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 [...]
The Capacity of Smart Beta Funds — Larger than Previously Thought?
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
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 [...]
“Alternative” Facts about Formulaic Value Investing
A paper, "Facts about Formulaic Value Investing," is making the rounds and professes to plunge a dagger directly into the heart of systematic value investors. Half [...]
Value and Momentum Investing in Frontier Stock Markets
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. [...]
Swedroe Spotlight: Does Market Sentiment Help Explain Momentum?
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.
Visual Active Share: A Tool to Help Investors Make Better Decisions
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 [...]