Improving the Quality Factor by Incorporating Intangible Intensity
In this paper we explain the answer to the question of if intangibles can be used to improve the performance of the quality factor.
How factor exposure changes over time: a study of Information Decay
Factor strategies need to be rebalanced in order to maintain their factor exposure. But different factors decay at different rates and this affects how they should be rebalanced. For example, momentum needs to be rebalanced more than value. This study digs into these questions.
Global Factor Performance: April 2023
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
Combining Reversals with Time-Series Momentum Strategies
Jiadong Liu and Fotis Papailias contribute to the momentum literature with their study “Time Series Reversal in Trend-Following Strategies,” published in the January 2023 issue of “European Financial Management,” in which they examined the reversal property of various financial assets.
Wes Discusses Value Investing Foundations with Isaiah Douglass
On this week's episode, Isaiah is joined by expert Dr. Wesley Gray, CEO of Alpha Architects, to discuss the concepts of value 🌱 investing.
Institutional Investors’ Impact on Factor Premiums
For anomalies that are risk-based, that is what we should expect to see because, while risk cannot be arbitraged away, cash flows can reduce the size of the premium. For the anomalies that are behavioral based, it appears that limits to arbitrage are still sufficient to allow them to persist post-publication.
Research and Development, Expected Profitability, and Expected Returns
Regardless of the model used, an anomaly for all models is that the empirical evidence demonstrates that stocks with high research and development (R&D) expenses have delivered a premium.
Are Short Covering Trades Informative?
The importance of the role played by short sellers has received increasing academic attention in recent years. Short sellers help keep market prices efficient by preventing overpricing and the formation of price bubbles in financial markets. Market efficiency is important because an efficient market allocates capital efficiently. If short sellers were inhibited from expressing their views on valuations, securities prices could become overvalued and excess capital would be allocated to those firms.
Compression: Can the Value Spread Expand Forever?
We believe owning deep-value stocks is potentially interesting at these valuation peaks. But as I said in the previous two times I wrote this, the spread can get more extreme. At some point, we'd like to stop talking about the valuation spread and its potential effect on forward expected returns...and see that spread COMPRESS!
Global Factor Performance: March 2023
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
Can We Improve Momentum Factor Investing via Salience Theory?
The contribution of salience theory to the theory of asset pricing turns out to be quite a profitable insight for momentum strategies.
Intangibles and the Value Factor
This figure shows the long, short and long-short leg performance of the intangible value factor in comparison to the traditional value factor. The performance is shown for each of the four regions: U.S., Europe, Japan and Asia Pacific between June 1983 and December 2021. The monthly returns are ex-post volatility scaled to 5% p.m
Does International Diversification Work?
In this article, the authors examine the research on the benefits of international diversification. Some argue that because equity markets generally crash simultaneously, there are no benefits to having equity diversification. The evidence from this paper rejects this hypothesis.
Inside the Minds of Expected Stock Returns
Non-traditional investor preferences play an important role in explaining the cross-section of expected stock returns.
How Pervasive is Corporate Fraud?
In this article, we examine the research on the pervasiveness of corporate fraud (misconduct or alleged fraud), which is one of the (less emphasized) costs of public ownership.
It’s Always Darkest Just Before Dawn
Wide divergences between the valuations of cheap stocks relative to expensive stocks have preceded significant outperformance for value over the subsequent decade, as shown in this figure.
Global Factor Performance: February 2023
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
Factor Returns and the Information in Valuation Spreads
Given that valuations provide information on equity returns, it should not be surprising to learn that valuation spreads provide information on future factor premiums.
Do Investors Pay Less Attention to Women (Fund Managers)? YES
This article examines the research on gender bias and fund management. Specifically, we will focus on the gender-based attention bias.
Should investors be indifferent to dividend impact on stock returns?
In their 1961 paper, “Dividend Policy, Growth, and the Valuation of Shares,” Merton Miller and Franco Modigliani famously established that dividend policy should be irrelevant to stock returns. As they explained it, at least before frictions like trading costs and taxes, investors should be indifferent to $1 in the form of a dividend (causing the stock price to drop by $1) and $1 received by selling shares. This must be true, unless you believe that $1 isn’t worth $1. This theorem has not been challenged since, at least in the academic community.