From 2017 through March 2020, the relative performance of value stocks in the U.S. was so poor, experiencing its largest drawdown in history, that many investors jumped to the conclusion that the value premium was dead. It is certainly possible that what economists call a “regime change” could have caused assumptions to change about why the premium should exist/persist.
Having conducted an inordinate amount of research on the momentum factor, we find it comforting (likely due to confirmation bias!) that independent researchers have identified the same thing we have found -- frog in the pan is a robust way to measure momentum if one is seeking to take advantage of the momentum factor.
The reported results we covered have important implications for investors in terms of portfolio construction, risk monitoring, and manager selection. Because these common factors explain almost all the returns of bond portfolios, investors should construct their bond portfolios using low-cost, passively (systematically) managed funds with these factors in mind and then carefully monitor their exposure to these systematic risks.
The main takeaway for investors is that Kelly, Moskowitz, and Pruitt demonstrated that past return characteristics are strongly predictive of a stock’s realized exposures to common risk factors, providing direct evidence that price trend strategies are in part explainable as compensation for common factor exposures—past returns predict betas on factors and those factors have high average returns.
In theory green stocks should have lower expected returns, this however, is not what we've seen. So the question is what has caused the outperformance of green stocks? And has that outperformance cost value investors their returns?
Ben and Cameron, which host the excellent Rational Reminder podcast, sit down with Jack Vogel and go through a laundry list of factor investing questions
Momentum, Reversals, and Investor Clientele Andy Chui, Avanidhar Subrahmanyam, and Sheridan TitmanReview of Financial Studies, 2021A version of this paper can be found hereWant to read [...]
A large body of evidence, including the studies “Is There Momentum in Factor Premia? Evidence from International Equity Markets,” Factor Momentum Everywhere (Summary)” and “Factor [...]
From 2017 through March 2020, the relative performance of value stocks in the U.S. was so poor, experiencing its largest drawdown in history, that many [...]
Factor Investing in Sovereign Bond Markets: Deep Sample Evidence Baltussen, Martens and Penningaworking paper, 2021A version of this paper can be found hereWant to read our [...]
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 [...]
When it comes to Value and Momentum investing we often get asked the following set of questions: Should I use value and momentum, in one [...]
Our chat with Wes Gray illuminates the subtle nuance and discipline of concentrated factor investing, the difference between behavioural and risk-based factor premiums, and the [...]
We are proponents of focused (i.e., 50 stock) long-only value and momentum factor strategies.[ref]Please note that in the context of long/short factor investing, which is [...]
Wes Gray, CEO of Alpha Architect, talks about the value rotation, momentum stocks, the ETF white-labeling business, and more with Nate Geraci. External link to the [...]
COVID is killing conference mojo overall, but we were able to host a short and sweet "Democratize Quant" conference this morning. The speakers were terrific [...]
Momentum? What Momentum? Erik Theissen and Can YilanciA version of this paper can be found hereWant to read our summaries of academic finance papers? Check out [...]
Tony Greer, the founder of TG Macro, is joined by Wes Gray, CEO of Alpha Architect, a research-intensive asset management firm with a focus on [...]
Doug Pugliese, the head of our 1042 QRP business, was recently invited on the Meb Faber Podcast to discuss the ESOP landscape and the costs [...]
I was recently invited on the Excess Returns podcast with Justin Carbonneau and Jack Forehand. We discussed Momentum and Trend-following. Commentary/Links: In the [...]
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