Value Investing Got Crushed During the Internet Bubble — Here’s Why…
The dot-com bubble of the late 90s was a wild time in the stock market. Internet stocks were trading through the roof, tech IPOs were [...]
Want to Learn Way Too Much About Stock Market Factors? Read This Paper.
During the past few decades, newly discovered stock anomalies have been embarrassing existing factor models, such as the Fama-French 3-factor. As many readers know, each [...]
Quantitative Momentum: A Guide to Momentum-Based Stock Selection
The long wait is over. Our newest book--Quantitative Momentum--is finally here. After 2 years of research review, results replication, reverse engineering, internal idea generation, writing, editing, [...]
Introducing the Global Earnings Announcement Premium
How do stock prices react to earnings announcements? Sometimes prices go up, and sometimes they go down. But here is a potentially more interesting question: What is [...]
Predicting Booms and Busts in Low Volatility Strategies
Low volatility funds are some of the best performers in the market these days. As such, they have attracted renewed attention in addition to significant [...]
Why a Stock Market Double Would Not be Weird
This morning we got a sad note from a famous former hedge fund manager (a friend of the firm who shall remain nameless): What if the [stock] [...]
Tactical Asset Allocation: A Practitioner’s Defense of Return Predictability
The prospect of being able to successfully anticipate and predict future market returns is irresistible to practitioners and academics alike, although success has proven elusive. Many [...]
How Dumb Money and Smart Money Drive Stock Market Anomalies
Stock market anomalies behave in mysterious ways. Over long periods of time they can provide expected outperformance versus passive indexes, but in the short run they can [...]
Was the Financial Crisis Really a Valuation Crisis?
Most people look back at the dot-com bubble and acknowledge valuations were elevated far above historical norms. Investors ignored historically useful fundamentals, such as earnings [...]
Do Investment Consultants’ Recommendations Add Value? Nope.
Just got done perusing the latest issue of the Journal of Finance . As is the typical case, 50% of the articles can be read if [...]
Value investing is quite possibly the worst idea…EVER
n short, value investing the past few years has been a bad experience, but things can get a lot worse before they can get better. Sadly, this is the lot of the value investor. Value investing is really a tragic story of pain, anguish, and heartbreak that never really has a happy ending. The expected gains are almost always offset with extreme relative performance pain.
The Expensive Lesson of Closet Indexing: Avoid Low Active Share and High Expenses
The promise of active investing is compelling: the opportunity to earn higher risk-adjusted returns! And paying a fee to an active manager--who is doing something unique--can make sense. And [...]
Is momentum investing dead? Or is it just painful?
Sometimes even the best evidence-based active investment strategies can create a formidable challenge to investors seeking to exploit them. Case in point -- momentum investing. [...]
When Academics Disagree on Momentum Investing
The academic standard for intermediate-term momentum measurement is "12_2 momentum:" simply sort all stocks based on a stock's total return over the past twelve months, ignoring [...]
Time Series Momentum and Volatility Scaling
There is a new paper published in the Journal of Financial Markets that digs a bit deeper into the Moskowitz, Ooi, and Pedersen "Time Series [...]
Managed Futures: Understanding a Misunderstood Diversification Tool.
In my two previous blog posts (here and here), I analyze the performance of bonds during really bad months for US stocks (“Crisis Alpha” months), [...]
Optimizing Mean Variance Optimization
In the 1950s, Harry Markowitz proposed a method to identify the optimal trade-off between risk and return for a portfolio. The theory is broadly termed, "Mean-Variance Optimization [...]
Dealing with Delistings: A Critical Aspect for Stock-Selection Research
Eric Crittenden was recently on Meb Faber's podcast and he tells a compelling story about the perils of survivor bias in backtesting. Eric's story begins when [...]
Surprise! The Size, Value, and Momentum Anomalies Survive After Trading Costs
Anyone who has spent time reading this blog has become familiar with research involving asset pricing anomalies that generate excess returns.In particular, the academic literature [...]
Asset Pricing with–and without–garbage.
If you are into consumption-based asset pricing theory and the associated empirical attempts to reconcile the theory with the data from the realized equity premium, garbage is a [...]