Measuring Geopolitical Risk
Although geopolitical risk has traditionally been approached from a qualitative aspect, what makes it a novel risk is the application of innovative techniques to measure it.
The Performance of Multi-Factor Long-Short Portfolios in Various Economic Regimes
To determine if a multi-factor approach has provided diversification benefits in terms of exposure to economic cycle risks, the research team at Counterpoint evaluated returns to multifactor long-short strategies, stocks, and 1-month T-bills in a variety of economic conditions (recession or no recession, high or no high inflation, and stagflation) over the period July 1963-August 2022.
Book Review: The Bogle Effect by Eric Balchunas
This is a review of Eric Balchunas's book "The Bogle Effect: How John Bogle and Vanguard Turned Wall Street Inside Out and Saved Investors Trillions."
Bigger is Not Always Better in Asset Management
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.
Mutual Fund to ETF Conversions: To Proxy or Not to Proxy, that is the question
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.
Machine Learning and The Cross-Section of Emerging Market Stock Returns
The paper documents that return forecasts from machine learning methods lead to superior out-of-sample returns in emerging markets.
Global Factor Performance: December 2022
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
Volatility scaling is useful for factor timing
This paper investigates the effects of volatility scaling on factor portfolio performance and factor timing.
The “Resurrected” Size Effect and Monetary Policy
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.
Investing in Deflation, Inflation, and Stagflation Regimes
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.
Trend Following and Relative Sentiment: Complementary Factors
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.”
DIY Trend-Following Allocations: December 2022
No exposure to domestic equities. Partial exposure to international equities. No exposure to REITs. Full exposure to commodities. No exposure to intermediate-term bonds.
Want to Get on a Corporate Board? Who You Know Matters
Here's what the research says about how to get on a board of directors.
Does Momentum work in Option Markets?
This paper explores the question of option momentum by examining what the research says about the performance of option investments across different stocks.
Optimal Trend Following Rules in Two-State Regime-Switching Models
We examine trend-following rules when the stock returns follow a two-state process that randomly switches between bull and bear markets.
Active Managers are Subject to the Same Biases as Individual Investors
Are active managers victims of the same bias as individual investors? That is the question we’ll explore in this paper.
Is there a theoretical foundation behind industry and factor momentum
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.
The Role of the Secular Decline in Interest Rates in Asset Pricing Anomalies
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?
Global Factor Performance: November 2022
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
The Cross Section of Stock Returns Pre-CRSP data: Value and Momentum are confirmed as robust anomalies
We study the cross-section of stock returns using a novel constructed database of U.S. stocks covering 61 years of independent data.