This study explores the degree to which fund concentration (high tracking error) affects the magnitude of excess returns and whether or not the likelihood of outperformance or underperformance are distributed similarly.
Academic research has demonstrated that the higher risk associated with less sustainable firms should be compensated by higher returns. It also has shown that more sustainable firms have less investment risk.
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
Although the most efficient way to implement a value strategy may need to be clarified, it is clear that value has withstood the test of time and that some implementations are superior to others. The evidence suggests that P/B is not an efficient metric as a standalone criteria. Instead, value strategies that use P/B should include at least a measure of profitability while managing sector - and security-level diversification.
Researchers have raised questions and led to research into how many factors are needed, the replicability of originally reported results, and the decay of factor performance over time.
The “Intangible Value Factor” (IHML) can play an additive role in factor portfolios alongside the established market, size, value, quality, and momentum factors. This Six-Factor Model avoids the problematic “anti-innovation” bias of traditional factor portfolios and can be easily implemented using ETFs.
The article aims to explore the possibility that changes in fundamentals play a role in the attenuation of stock market anomalies, offering an alternative explanation to the prevailing arbitrage-based explanation
There are several significant, well-documented benefits of index funds. In addition to outperforming a large majority of actively managed funds, they tend to have low fees, low turnover (resulting in low trading costs and high tax efficiency), broad diversification, high liquidity, and near-zero tracking error (generally assumed to mean that they incur negligible trading costs).
Summary: no difference in average returns between large-cap and small-cap portfolios. There you have it. The small-cap sacred cow has been slaughtered.
This paper finds that the level of industry classification plays a significant role in the performance of industry momentum strategies.
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Download
While most sin stocks in the IC method were also identified as sin in the TA method, there were 57 firm-year cases where a company showed up as sin only in the IC method—these were false positive sin stocks as identified in the IC method.
Not accounting for intangibles affects not just value metrics but other measures (such as profitability) that often scale by book value or total assets, both of which are affected by intangibles—and investors recognize at least some of their value.
We recently hosted our 6th Annual Democratize Quant Conference. This post is a recap of what we heard and some resources we can make available to the public.
Momentum crashes are a blight on the performance of momentum strategies. Although there has been a fair amount of research on the topic, few practical solutions have emerged to mitigate the impact on portfolios. In this study, the authors document the outperformance of stocks, in terms of momentum, far away from their peak position relative to stocks very near their peaks. Turns out the outperformance is very large. It also accounts for the majority of negative momentum performance.
This article examines the research conducted by Dimensional to determine the efficacy of an industry or country approach to factor investing.
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
John Campbell, Stefano Giglio, and Christopher Polk, authors of the March 2023 study “What Drives Booms and Busts in Value?,” sought to determine which factors drive value’s booms and busts. They interpreted the returns to the standard value strategy through the lens of Robert Merton’s intertemporal CAPM (ICAPM).
Eric Balchunas, Cliff Asness, Kai Wu, Que Nguyen, Corey Hoffstein
In this paper, we propose a cross-sectional option momentum strategy that is based on the risk component of delta-hedged option returns. We find strong evidence of risk continuation in option returns.
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