Backtesting strategies based on multiple signals — Beware of Overfitting Bias!
One of the dangers of being a quantitative investor is that when you see patterns in historical data you might wrongly assume they will repeat. Put [...]
Stock Market Anomalies and Baseball Cards
I still have a Ken Griffey Jr. Rookie Card. To be honest, I don't even know where the thing is, but I hope it is [...]
Leveraging Persuasion Science to Nudge Investors in a Better Direction
Making choices can be difficult, but possible alternatives can be arranged in a way that facilitates effective decision-making. This is the idea behind “choice architecture,” [...]
Digging Deeper into Adaptive Asset Allocation
In some ways, investing is simple. After all, we all want the same things. High returns. Low volatility. Small max drawdowns. Unfortunately, it's very difficult--if [...]
Invert, always invert: Will Stocks Diversify Bond Investments in the Future?
My last post, "Will bonds deliver crisis alpha in the next crisis?," created quite a stir on the blogosphere. The underlying assumption of the analysis is [...]
Want to Know the Secret to Inefficient Prices? Lazy Prices.
How do you handle repetitive tasks? If you're like most people, you work through a task in a variety of ways, find the most efficient approach, [...]
Will Bonds Deliver Crisis Alpha in the Next Crisis?
Bonds are often viewed as being great diversifiers due to the perception that they perform well during tough times for stocks. Historically this has been a [...]
Bubble Investing: Learning from History
We just wrote a piece for Forbes on financial bubbles in the lab. Punchline: investors initially underreact to fundamentals, then they overreact, and eventually prices correct. [...]
Want to spot a true Value Investor? Look for horrible recent performance
Harry Houdini is perhaps the best-known magician of all time, gaining notoriety in the early 20th century through his daring escape acts. Houdini escaped from straight [...]
BARRACKS CASH: A Military Guide to Better Saving and Spending
Foreword: Mark Cowett is an interesting character. He is a University of Chicago undergraduate with a BA in History as well as an MBA from [...]
Behavioral Finance Strikes Again: Contrast Effects in Financial Markets
At this point, even hard core efficient market fans will likely admit that behavior can influence investment decisions. Humans aren't robots. However, just because some investors exhibit bad behavior [...]
A Stunning New Finding: Return Seasonalities are Everywhere
We've discussed return seasonalities in the past, especially as they pertain to our approach to momentum. Turns out seasonality effects aren't confined to momentum -- they [...]
Not so Simple: Valuations and Low Volatility Strategies
Low volatility funds are everywhere. The reasons for their proliferation are clear: Who wouldn't want to own something with the label "low volatility" andRecent performance [...]
Replicating Private Equity Returns with Small Value Stocks…3min video
We discussed private equity replication with public equities here and here. Erik Stafford just won the "honorable mention" award from AQR for his work on [...]
How Portfolio Construction Affects Value Funds
Value investing is an investment philosophy that has been extensively discussed and examined at least since the days of Ben Graham, who popularized it as [...]
Book Review — The Drunkard’s Walk: How Randomness Rules Our Lives
Although randomness is all around us, we often fail to recognize the profound role it plays in our lives. Evolutionary biology and faulty intuition lead [...]
Alternative Beta can be Great: But Beware of Data-Mining!
Quantifying Backtest Overfitting in Alternative Beta Strategies Antti Suhonen, Matthias Lennkh, and Fabrice Perez A version of the paper can be found here. Want a summary [...]
The Academic Finance Papers That Changed My Mind
What does it mean to be the "best" research? For me, this means the most influential in changing my view on the world. So the [...]
Does Buffett Have Lessons for Systematic Value Investors?
We are fundamentals-based value investors, just like Warren and Charlie, but have chosen to pursue the art of value investing in a slightly different way [...]
How Testosterone and Stress Affect Financial Decision-Making
Decision Making, Financial Risk Aversion and Behavioral Biases: The Role of Testosterone and Stress Nofsinger, Patterson and Daigler A version of the paper can be [...]