This article seeks to examine what research says about the interplay between risk tolerance, financial literacy, and trust and their collective impact on the pursuit of financial advice by Black and Hispanic households.
Full exposure to domestic equities. Full exposure to international equities. Full exposure to REITs. No exposure to commodities. Partial exposure to intermediate-term bonds.
The world is complex and ever-changing; news travels at warp speed, events happen fast, and popular narratives can distract and mislead us. Many risks important for our portfolios are new, hidden, or nuanced in some underappreciated way—and likely to be misunderstood and mispriced in the markets. Other risks can hide in plain sight. Good risk management can be described as a balancing act that employs the first principles of investing, lessons from history, behavioral psychology, a little math, and even our imagination in service of our objective: to detect and defend against the risks we can foresee and fortify our portfolios against those we cannot. In short: we need informed creativity, not calculation.
The empirical research findings demonstrate that the return premium generated by being long low-distress risk stocks and short high-distress risk stocks is persistent and that the capital asset pricing model (CAPM) and the Fama-French three-factor models cannot explain it. Hence, we have the distress puzzle, or anomaly.
For many benchmark predictor variables, short-horizon return predictability in the U.S. stock market is local in time as short periods with significant predictability (“pockets”) are interspersed with long periods with no return predictability.
Option returns display momentum, meaning that firms whose options performed well in the previous 6 to 36 months are likely to see high option returns in the next month as well.
Can machine-learning methods be used to predict the performance of active mutual funds, specifically in terms of alpha net of all costs? Answer: yes.
The timing of equity factor premiums has a strong allure for investors because academic research has found that factor premiums are both time-varying and dependent on the economic cycle.
Hence, the major research question examined here is: What is the impact of industrial pollution on market pricing? Short answer: polluters have earned higher returns.
While the research shows that fund managers are skilled, skill doesn’t translate into outperformance due to the diseconomies of scale.
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
The article discusses the importance of integrating psychology into the field of financial planning and highlights the need to understand and address the psychological aspects of financial decision-making and client relationships.
Full exposure to domestic equities. Full exposure to international equities. Partial exposure to REITs. No exposure to commodities. No exposure to intermediate-term bonds.
Ignoring the impact of taxes on the returns of taxable accounts is one of the biggest mistakes that can be made.
As pundits wrestle over the cause, implications, and sustainability of the recent massive moves in interest rates, I’ll instead delve into the two terms most often blamed for these shifts in rates: R-star and the Term Structure Premium. Unfortunately, what most want—a measure of them—is unknowable. But we can benefit from understanding the theories and models behind these terms. We can glean guidance on what we need, namely a better understanding of the risks and rewards of buying longer-maturing bonds at current rate levels. I contend that now is a good time to secure future cash flows by buying bonds, although determining the precise amount to invest remains a challenge.
Momentum investors utilize different timeframes to identify high momentum equities: past 6, 9, 12 months as an example. Obviously, there is a significant degree of overlap in momentum stocks identified across various past time frames. However, there has been little research focused on understanding the characteristics of momentum stocks formed on six and 12 months that overlap one another. The authors refer to the subset as “overlapping” stocks and suggest they constitute the largest proportion of the profitability of the momentum strategy.
Covered calls implemented to deliver higher derivative income should be expected to have (1) lower total returns, (2) higher tax realizations along the path, and (3) a more negatively skewed return profile. Investors who allocate to these strategies for their income alone, without accounting for these other considerations, might have made a devil’s bargain
We are pleased to announce that Erik Chavez has joined Alpha Architect and will work alongside Kyle and Doug to support our 1042 QRP ESOP service (qualified replacement property for ESOP rollovers). While new to our team, Erik has been our friend for a long time. Erik is a multiple-time March for the Fallen survivor -- see below when he is part of the MFTF clean-up crew (cirled in blue).
The article introduces a concept called "impact elasticity," which measures how a firm's environmental impact changes in response to shifts in its cost of capital (the "E" in "ESG"). It finds that the dominant sustainable investing strategy, which favors green firms and punishes brown firms by altering their cost of capital, can be counterproductive.
When a small subset of companies makes up a large portion of a portfolio, for better or worse their returns will have a greater impact on overall portfolio results.
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