Factors are global, respectable and repeatable
The propagation of factors actually reflect valid characteristics of the markets and market fluctuations.
Improving Low Volatility Strategies
The bottom line is that returns to the low volatility anomaly have only justified investing when low-volatility stocks were in the value regime, after periods of strong market performance, and when they excluded high-volatility stocks that have low short interest (providing clues as to how to improve its performance). This may be why live funds have been generating large negative alphas once we account for common factor exposures.
Financial Knowledge in Europe: Women Lag Men in their financial Literacy
This paper examines the level of financial literacy across the 27 EU member states, using data from the 2023 Flash Eurobarometer 525 survey.
The Explosive Growth of Private Credit: Is There a Bubble?
The growth rate of private credit has been so rapid (growing to nearly $2 trillion by the end of 2023, roughly ten times larger than it was in 2009), that concerns about there being a bubble have been raised.
Rethinking Asset Growth in Asset Pricing Models
Measures of asset growth add considerable explanatory power to asset pricing models, but wait, there’s a twist. The formulation for measuring asset growth in risk [...]
Markets Becoming More Efficient: The Disappearing Index Effect
Greenwood and Sammon’s findings of a disappearing index effect provides further support for the findings of McLean and Pontiff, Does Academic Research Destroy Stock Return Predictability? 2016. Once anomalies are well recognized by the market they decline and may even disappear, though limits to arbitrage can allow them to persist. Their findings also provide support for Andrew Lo’s The Adaptive Markets Hypothesis (2004). The bottom line is that markets are becoming more efficient, raising the hurdles for active managers to generate alpha.
Accessing Private Markets: What Does It Cost?
By quantifying how non-performance-based fees dominate the cost structure, this research questions whether current fee models effectively align with investor interests, which could influence future fee arrangements and industry standards.
Using Trading Volume to Optimize Portfolio Construction and Implementation
The authors of the research discussed developed a machine learning model that can accurately predict trading volume for individual stocks. They then demonstrated how this model can be used to construct a portfolio that outperforms a traditional market-cap weighted portfolio.
DIY Trend-Following Allocations: November 2024
Full exposure to domestic equities. Full exposure to international equities. Full exposure to REITs. No exposure to commodities. Full exposure to intermediate-term bonds.
Can Artificial Intelligence outsmart seasoned equity analysts?
If the task is to identify a firm’s true profitability, can AI outsmart seasoned analysts?
Academic Anomalies Formed After Information Events
The hurdles to adding alpha for active managers are getting higher—investment practitioners make use of it as soon as or shortly after it is available.
FinTech Credit and Entrepreneurial Growth
Access to automated online credit boosts sales, transactions, and customer capital for firms, particularly in regions underserved by traditional banks.
Artificial Intelligence, Textual Analysis and Hedge Fund Performance
There’s no reason to think that the use of AI should lead to persistent fund outperformance, with any advantages gained likely being short lived.
Artificial intelligence, firm growth, and product innovation
AI-powered growth concentrates among larger firms and is associated with higher industry concentration. Our results highlight that new technologies like AI can contribute to growth and superstar firms through product innovation.
The Sahm Rule as a Recession Indicator
Because the Sahm rule focuses solely on the unemployment rate, caution is warranted before assuming it is signaling a recession.
Global Factor Performance: October 2024
The following factor performance modules have been updated on our Index website.
Reading the WSJ May Make You a Better Economist
How can textual analysis of business news, specifically The Wall Street Journal (WSJ), be used to measure the state of the economy?
The Hidden Cost of Index Replication
An index-tracking approach generally lacks flexibility, which detracts from performance, leaving returns on the table. Intelligent design can overcome such issues. For example, an S&P 500 Index could choose to rebalance one month ahead of the scheduled reconstitution, minimizing the impact of reconstitution. Direct index funds are already engaging in such strategies with ETFs.
DIY Trend-Following Allocations: October 2024
Current Exposures: Full exposure to domestic equities. Full exposure to international equities. Full exposure to REITs. No exposure to commodities. Full exposure to intermediate-term bonds.
Analysts set price targets using trailing P/E ratios
Trailing twelve-month P/E ratios account for 91% of the variation in analysts’ price targets. We construct a new kind of asset-pricing model around this fact and show that it explains the market response to earnings surprises.