Professors John Graham and Campbell Harvey consistently put out great research. One of their innovations in financial research is their annual CFO survey (we've covered this research here, here, and here, if interested). In their [...]
When stock prices reach a new high, investors start asking the question: Are stocks overvalued? To answer this question, investors have developed several alternative equity valuation models. Typically, each of these models compares the stock [...]
Each morning we peruse a variety of research sites to see if there is anything exciting, new, and intriguing. Rarely does one find something that triggers a knee-jerk reaction like a recent paper by Hendrik [...]
There is still no value in bonds today. The typical knee-jerk reaction to bold bond statements (such as the one above) is as follows: This guy is a total idiot This guy is a total genius I [...]
Imagine the following scenario: A strategy that outperforms everything. An ability to scale the strategy at no costs. A beating drum highlighting the infallible logic of the strategy. And the best part is this strategy [...]
This morning we got a sad note from a famous former hedge fund manager (a friend of the firm who shall remain nameless): What if the [stock] returns are never positive again? Just a question from a [...]
The prospect of being able to successfully anticipate and predict future market returns is irresistible to practitioners and academics alike, although success has proven elusive. Many have fallen short while seeking this "holy grail" of investing. [...]
Most people look back at the dot-com bubble and acknowledge valuations were elevated far above historical norms. Investors ignored historically useful fundamentals, such as earnings and book value, and started relying on measures like eyeballs and [...]
If you are into consumption-based asset pricing theory and the associated empirical attempts to reconcile the theory with the data from the realized equity premium, garbage is a fascinating subject. So let's talk about asset pricing both with--and [...]
Bonds are often viewed as being great diversifiers due to the perception that they perform well during tough times for stocks. Historically this has been a true statement. But will it continue? Our answer: unclear. Most [...]
A few weeks ago, the WSJ announced that in the third quarter the growth rate of China’s economy had declined to 6.9% -- the lowest rate since the financial crisis. Perhaps predictably, economist naysayers immediately [...]
In a sustained effort to try too hard, investors are constantly analyzing and assessing the growth rates of various markets around the world. The key assumption behind this analysis is that knowledge of these growth [...]
Macroeconomic forecasting is incredibly difficult. The results from this paper suggest that the brainpower of the Fed's 100 person economics team can predict 3 to 6 months out with a reasonable degree of success, but beyond that time [...]
Last night, China's principal benchmark, the Shanghai Composite index, collapsed 7.4%. Ouch! Now that's what we call a drawdown! Hundreds of stocks hit their daily 10% drawdown limit (where selling is not allowed below the [...]
The Graham-Harvey survey is complete and the expectations of CFOs are available for review. As the figure below highlights, expected returns on the S&P 500 have been gradually decreasing over time. As of Q1 2015, [...]
The Liquidation of Government Debt Carmen Reinhart and M. Belen Sbrancia A version of the paper can be found here A video of Prof. Reinhart discussing financial crises Note: this is an updated version of [...]
Earlier this month, McKinsey published a remarkable report on trends in global debt, and concludes that the world's debt, rather than decreasing, is in fact increasing worldwide. So much for deleveraging. The report breaks down [...]
As "everyone" seems to know, the US 10-year Treasury bond has a low relative yield and is "inevitably going to rise at some point in the future." We have no strong feelings one way or [...]
The blogosphere is spammed with commentary related to the current high market valuations and the inevitable crash that "must" ensue. We've even been involved in the conversation at different points, trying to add some depth [...]
Investors are enamored with various investment houses and personalities who claim insight into the prospects for long-term expected market returns. Some classic examples include Nouriel Roubini, John Hussman, David Rosenberg, or Jeremy Grantham. All really smart people. But have you ever asked "How" these folks came to their conclusions? In most cases, the answer is probably "No" and the reason is because there is a lack of transparency from the author(s) and/or a lack of knowledge/understanding on behalf of the reader. We also want to highlight that one can develop incredibly complex return forecasting models -- super sexy, super interesting, super compelling, etc. -- but that still doesn't mean they are any good at forecasting much of anything.