The Risks of Passive Investing Dominance
Fueled by the persistent failure of active management, passive investing now commands the majority of assets under management.
Why the Last Few Minutes of Trading Might Matter More Than You Think
This paper reveals a striking pattern in U.S. stock markets: the prices of individual stocks often reverse direction at the very end of the trading day. Using high-frequency data, the authors find that the last few minutes—particularly the closing auction—are dominated by large institutional flows that cause temporary price pressure. This is followed by a reversal the next day.
How Many Stocks Should Be In Your Portfolio? A Practical Guide to Portfolio Construction
Diversification is the only free lunch in investing. If you’ve spent even a day exploring the world of finance, you’ve likely encountered this common truism. But chances are, you’ve also heard stories of someone turning a small stake into millions by going all-in on just one or two stocks. That contrast raises a natural question for many investors: how many stocks should I actually own in my portfolio? Too many stocks, and you might be leaving opportunities on the table. Too few and you risk losing your shirt! So how do we strike a balance?
Do Smart Machines Make Smarter Trades?
Can machine learning models help us exploit stock market anomalies more effectively? This paper says yes—but with a few important caveats. By applying gradient boosting algorithms to a wide array of established anomalies (like value, momentum, and quality), the authors show that machine learning methods can significantly improve the performance of long-short strategies.
Volatility is a Reliable and Convenient Proxy for Downside Risk.
Is volatility (the standard deviation of returns) a good measure of the risk that investors actually care about?
What Factors Drive Corporate Bond Returns?
This paper explores how value, momentum, low-risk, and size factors explain differences in corporate bond returns across firms and over time.
Should Investors Combine or Separate Their Factor Exposures?
If you’re a factor investor, there will come a time where you will have to choose between mom and dad: Should you combine or separate your factor exposures? And make no mistake: You will have to make a decision! While there’s no right answer, the way you structure your portfolio can have significant implications for returns, costs, and even your own behavior as an investor. Let’s walk through the logic behind both approaches.
Reaching for Yield: What Retail Investors Do When Rates Drop
Younger and less-wealthy individuals are more prone to increasing their exposure to riskier assets in low-interest environments. Investors experiencing losses are more likely to seek higher yields.
Insider Trading Increases Market Efficiency
The empirical research (for example, here, here, here and here) on insider trading demonstrates that insider transactions have significant predictive power for future stock returns [...]
Are Discount Rates More Important than Future Earnings for Stock Valuation?
Over 75% of the cross-sectional variation in P/E ratios is driven by future return differences, not growth expectations. This challenges many common asset pricing models and changes how investors should think about value, growth, and long-term return forecasting.
Trend-Following Filters – Part 9
This article examines and compares, from a digital signal processing (DSP) time domain perspective, several filters that are modeled on the assumption that the input follows a second order process, i.e., the input contains a linear trend. These filters are, by design, better able to track linear trends than some other more commonly-used filters, such as moving average, exponential smoothing, etc., which exhibit lag, or a time delay, in response to trends. Filters modeled on a second order process are commonly referred to in the technical analysis literature as “zero lag” filters.
Can Modern Portfolio Theory Still Teach Us Any Lessons Today?
Modern Portfolio Theory (MPT) has long served as a foundational framework for asset allocation and portfolio construction. This concept remains influential in both academic finance and practical investment management. But the question investors face today is not whether MPT was revolutionary—it clearly was—but whether its insights still hold up under real-world conditions, decades later.
Does Divesting Pollutive assets Actually Help the Environment? No.
This study investigates whether firms' divestitures of pollutive assets genuinely contribute to environmental sustainability or merely serve as greenwashing tactics.
Enhancing Momentum Strategies
Momentum investing remains a viable strategy. However, the way you construct and manage your momentum portfolio matters greatly.
Concentrated Stock Risk, Tax Drag, and a Smarter Path Forward.
Investors with concentrated stock positions face a frustrating paradox: stay exposed to high single-stock risk or trigger steep capital gains taxes by selling. But what if there were a third option—one that preserved wealth, enhanced diversification, and maintained tax efficiency? That’s the vision behind the strategic partnership between Alpha Architect and Cache. Together, we’re working to reshape the way sophisticated investors and advisors approach concentrated equity positions—making advanced tools more accessible, transparent, and investor-friendly.
The Hidden Effort Problem: Work more and get better results?
Increased executive effort correlates with positive earnings surprises, higher cumulative abnormal returns post-earnings announcements, and narrower credit default swap spreads. Moreover, portfolios constructed based on changes in executive effort demonstrate significant risk-adjusted returns, underscoring the tangible value of diligent leadership.
What Is an Exchange Fund? A Way to Diversify Without Triggering a Tax Bill
Investors with large, concentrated stock positions often find themselves stuck between a rock and a hard place. On one hand, holding on to a single stock position exposes them to unnecessary risk. On the other, selling that stock can mean paying a hefty capital gains tax bill. What most investors don’t realize is that there’s a third option—a relatively obscure yet entirely legitimate strategy that can help diversify away single-stock risk without triggering immediate taxes: exchange funds.
Raising Capital from Investor Syndicates with Strategic Communication
The structure of investor syndicates—hierarchical or flat—significantly impacts the flow of information and investment decisions. In hierarchical structures, differentiated incentives can lead to persuasive cascades, while flat structures promote truthful information sharing.
Unlocking Cross-Asset Potential: A New Approach to Portfolio Construction
Christian Goulding and Campbell Harvey, authors of the study "Investment Base Pairs," proposed a groundbreaking framework for portfolio construction that challenges traditional approaches in modern finance. Their research focused on leveraging cross-asset information to optimize investment strategies and improve returns across diverse asset classes. Here's an overview of their investigation, key findings, and takeaways for investors and advisors.
Working More to Pay the Mortgage
The study examines how households adjust their labor supply in response to changes in mortgage payments due to fluctuating interest rates.