Gold as a Safe-Haven Asset
I’ve received calls from clients inquiring about moving assets to gold. When I asked them why, three reasons dominated.
Reducing the Impact of Momentum Crashes
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.
Pursuing Factor Premiums at the Industry and Country Level
This article examines the research conducted by Dimensional to determine the efficacy of an industry or country approach to factor investing.
Box Spreads: An Alternative to Treasury Bills?
Box spreads represent an opportunity to borrow and lend via the options market, at similar (and often better) rates than those that are available in the treasury bill market.
Global Factor Performance: May 2023
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
The Gender Gap in Housing Returns
Do men and women differ in their financial returns on housing investments? What are the main drivers?
The Reddit Road to Riches?
No surprise: reddit message boards don't lead to alpha generation.
DIY Trend-Following Allocations: May 2023
Partial exposure to domestic equities. Full exposure to international equities. No exposure to REITs. No exposure to commodities. Partial exposure to intermediate-term bonds.
What are the Best Times for ETF Investors to Trade?
The expense ratio aside, the cost of transacting in an ETF depends on the size of the bid/ask spread at any point in time during the trading day. The ETF investor should make evidence-based trading decisions since the bid/ask spread can range from 1 basis point (bp) to several hundred bps. What are some intelligent guidelines for ETF investors--avoid the open, avoid the close, and what about everything in-between? This article provides data on the effect of the time of day on the average bid/ask spread for ETFs.
The Drivers of Booms and Busts in the Value Premium
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).
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Eric Balchunas, Cliff Asness, Kai Wu, Que Nguyen, Corey Hoffstein
Novel explanations for risk-based option momentum
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.
Game On: Social Networks and Markets
This article studies how investment ideas can propagate through a social network and affect market behavior and prices.
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.
Merger Arbitrage as Diversification Strategy
Merger arbitrage is an investment style in which investors seek to buy shares of firms that are acquisition targets with the objective of realizing the difference between the amount for which the target is being acquired and the stock price of the target shortly after the acquisition is announced. The stock price of the target company typically sells below the acquisition price, reflecting the uncertainty of the deal being completed (the arbitrage spread). Betting on mergers is a classic hedge fund arbitrage strategy.
Trend-Following Filters – Part 6
This article analyzes six trend-following indicators from a digital signal processing (DSP) frequency domain perspective in which the indicators are considered as digital filters and their frequency response characteristics are determined.
Global Factor Performance: April 2023
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
Index Investing and the Informational Efficiency of Stock Prices
This article studies whether index investing has implications for the informational efficiency of stock prices.
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.