Factor Investors Beware: Positive SMB May Not Mean You Own Small-Caps
Regression analysis is used all the time to assess how a portfolio "loads" on certain factors. The most common factor loadings examined are the market, [...]
Do Trend-following Managed Futures Increase Safe Withdrawal Rates?
Andrew Miller, a regulator contributor to the blog, is passionate about the intersection of academic finance research and financial planning. We obviously love the academic [...]
Academic Research Insight: Being Surprised by the Unsurprising: Earnings Seasonality and Stock Returns
Are we misidentifying seasonal patterns as genuine earnings news? Tom Y. Change, Samuel M. Hartzmark, David H. Solomon, Eugene F. Soltes The Review of Financial [...]
Do Portfolio Factors or Characteristics Drive Expected Returns?
This article examines a somewhat overlooked, but important, discussion that raged among academic researchers on the source of the value investing premium in the late 1990s and early 2000s—the topic: factors vs characteristics.
Academic Research Insight: Sin Stocks May Earn a “Boycott” Risk Premium
Social Screens and Systematic Boycott Risk H. Arthur Luo and Ronald J. Balvers Journal of Financial and Quantitative Analysis A version of this paper can [...]
Factor Investing with Factor Expert Lu Zhang
Replicating Anomalies is arguably a "must-read" for anyone who thinks about factor investing and is looking to improve their understanding of the space. Lu Zhang, [...]
Takeaways from a Non-PHD who Powered Through a 144-page Factor Investing Paper
Wes recently challenged me with a unique proposition: Hey Ryan, read through this Replicating Anomalies paper and tell me what you think. Its a bit [...]
Academic Research Insight: Stick to the Fundamentals and Discover Your Industry Peers
Stick to the Fundamentals and Discover Your Peers Jean Overgaard Knudsen, Simon Kold and Thomas Plenborg A version of this paper can be found here Want [...]
A Potential Winner: Buying Lottery Stocks with Low Short Interest
Short Interest and Lottery Stocks Kelley Bergsma & Jitendra Tayal A version of this paper can be found here Want to read our short summaries of [...]
Trend-Following: A Deep Dive Into A Unique Risk Premium
Trend-following strategies have historically been laughed at via the modern academic finance research community. Having first-hand knowledge of that community, we can verify that academic [...]
A Fund Flows Theory for Value and Momentum Investing
Value and Momentum Investing -- our two favorite factors. We talk about these phenomena on our blog all the time, and have given both rational and behavioral explanations as to why these may occur. However, very few in the finance community are direct investors into Value and Momentum securities -- the individual stocks (or bonds) themselves. Many use ETFs or mutual funds to gain access to these factors. Institutions generally do the same, either investing in hedge funds or managed accounts. This is delegated asset management, whereby one delegates the decision of the security selection onto a third-party manager. A by-product of delegation is that from time to time, the third-party manager must be assessed. While many may claim the process is most important, the performance is always taken into consideration. So what happens to a Value manager who is overweight the wrong industry? While the manager may be following the same process discussed ex-ante, the ex-post assessment may be that the manager needs to be fired due to underperformance.
Academic Research Insight: Sentiment Feedback Strength Trading Strategy
Genetic programming optimization for a sentiment feedback strength based trading strategy Steve Y.Yang, Sheung Yin Kevin Mo, AnqiLiu, Andrei A.Kirilenko A version of this paper [...]
Replicating Anomalies
Academic research is amazing and incredibly useful for helping us better understand the complex world in which we live. In fact, academic research has literally [...]
Dividend Capture Strategy: Trade Execution Matters
One area in investing that is often overlooked by investors is trade execution, which relates primarily to commissions, bid-ask spreads, and price impact. Yet sometimes [...]
529 Plan Distribution Flowchart
I recently had a conversation with a client who had a big fat 529 plan and was planning to take a distribution from it to [...]
Academic Research Insight: Does Social Capital payoff during times of crisis in the markets?
Title: Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis Authors: Karl V. Lins, Henri Servaes, and Ane [...]
Reconciling Individual Stock Returns and Factor Portfolio Returns
Those in the financial media have recently been writing multiple stories on a fascinating working paper, "Do Stocks Outperform Treasury Bills?" by Hendrik Bessembinder. We [...]
How To Sell A Business Tax Efficiently via Structured Installment Sales
When an owner sells their business, the IRS and state taxing authorities will be there to take as much of it as they lawfully can. This one tax bill can be the single largest tax payment an owner will ever make and may represent over a third of their entire net worth. Furthermore, it comes after years of paying income/payroll taxes, working harder, and generally taking more risks than non-business owners. And when an owner wants to retire, the process is significantly more complicated than an employee who simply has to give a few weeks’ notice and maybe rollover a 401K. That’s because a business owner’s life’s savings is locked up in the value of their business. In fact, selling their business IS their retirement plan. So, accessing that wealth at the best possible price, in a way that is tax and cost efficient, is critical to their retirement. In this article, we introduce a unique service offering that can significantly reduce the impact of taxes and increase the price when selling a business. We’ve designed it to be used by business owners and their financial advisors (Wealth Managers, CFP’s, M&A Advisors, CPAs, etc.). If you are a business owner, or operate on behalf of business owners, read on.
ETF Product Development: Past, Present, and Future
On October 1st, 1908 Henry Ford introduced the Model T to the world. The power of the Model T was that it democratized the automobile [...]
Academic Research Insight: VOLATILITY WISDOM OF SOCIAL MEDIA CROWDS
Title: VOLATILITY WISDOM OF SOCIAL MEDIA CROWDS Authors: Ahmet K. Karagozoglu and Frank J. Fabozzi Publication: Journal of Portfolio Management, Winter 2017 [...]