Pastor, Stambaugh, and Taylor (2015) and Zhu (2018) provide significant evidence of decreasing returns to scale (DRS) at both the fund and industry levels. The authors examine the robustness of their inferences after Adams, Hayunga, and Mansi (2021) critique the above two studies.
ETF conversions are accelerating and we are seeing more and more mutual funds converting into ETFs. The reasons for mutual fund to ETF conversions are obvious: tax efficiency, transparency, and lower operating costs. But how does this work? What are the pro/cons? This post provides a glimpse behind the curtain and a practical guide for any asset manager considering a mutual fund conversion. Below we outline the laws behind a mutual fund conversion, options for mutual fund conversions, and the nitty-gritty behind how to optimize a mutual fund conversion.
The paper documents that return forecasts from machine learning methods lead to superior out-of-sample returns in emerging markets.
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
This paper investigates the effects of volatility scaling on factor portfolio performance and factor timing.
Given that tightening monetary policy increases economic risks, Simpson and Grossman provided compelling evidence of a risk explanation for the size factor. For those investors who engage in tactical asset allocation strategies (market timing), their evidence suggests that it might be possible to exploit the information. Before jumping to that conclusion, I would caution that because markets are forward-looking, they should anticipate periods of Fed tightening and the heightened risks of small stocks.
In this article, we examine the research on investing during inflationary regimes such as deflation, inflation, and stagflation. Factors perform relatively well in all regimes on a real basis.
Since it is likely that both the Relative Sentiment and Trend Following strategies will underperform at some points in the future, “a 50-50 combination of TF and RS might reduce the emotional volatility an investor may experience from holding only the underperforming strategy.”
No exposure to domestic equities. Partial exposure to international equities. No exposure to REITs. Full exposure to commodities. No exposure to intermediate-term bonds.
Here's what the research says about how to get on a board of directors.
This paper explores the question of option momentum by examining what the research says about the performance of option investments across different stocks.
We examine trend-following rules when the stock returns follow a two-state process that randomly switches between bull and bear markets.
Are active managers victims of the same bias as individual investors? That is the question we’ll explore in this paper.
Industry and factor momentum should be viewed as recent developments in the wider momentum story, although these aggregated measures of momentum lack any theoretical foundation.
Jules van Binsbergen, Liang Ma and Michael Schwert, authors of the September 2022 study “The Factor Multiverse: The Role of Interest Rates in Factor Discovery,” posed an interesting question: Are the findings of at least some of the reported anomalies the direct result of the 40-year secular decline in global interest rates and thus not really anomalies?
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
We study the cross-section of stock returns using a novel constructed database of U.S. stocks covering 61 years of independent data.
Independent RIA firms seek to do what is "right" for the client, which often boils down to minimizing fees and taxes and increasing transparency/education (i.e., ETFs). But the "right" solution for an advisor's clients might not be available 'off-the-shelf' in the ETF market, or the advisor can't use ETFs because they are stuck "managing around" legacy portfolios and tax problems.
What's the solution? Allow advisors to create their own ETFs, which can be customized to deliver the specific investment program the advisor desires and allows an advisor to offer unique solutions for legacy tax issues tied to low-basis securities.
Soroush Ghazi and Mark Schneider authors of the August 2022 study “Market Risk and Speculation Factors” decomposed the excess market return (the equity risk premium) into speculative (in the simple sense that it is negative, reflecting a premium investors pay to hold assets that are more subject to speculative demand) and non-speculative, or risk (in the simple sense that it is positive, a necessary characteristic for a factor to reflect compensation for risk) components.
No exposure to domestic equities. No exposure to international equities. No exposure to REITs. Full exposure to commodities. No exposure to intermediate-term bonds.
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