Low Short Interest Dominates Low Vol Strategies
The Long and Short of the Vol Anomaly Jordan and Riley A version of the paper can be found here. Want a summary of academic papers [...]
Behavioral Bias Bingo: The Affect Heuristic
How do your feelings affect your decisions? "Humans perceive and act on risk in two fundamental ways. Risk as feelings refers to individuals' instinctive and [...]
Global Market Valuations based on EBIT/TEV
We ran some numbers on the large liquid universe of stocks (>2B USD) traded in EAFE countries. In total there are 1086 names in the [...]
Betting Against Beta or Demand for Lottery?
Betting Against Beta or Demand for Lottery Bali, Brown, Murray, and Tang A version of the paper can be found here. Want a summary of academic [...]
Do Hedge Funds Frontrun Mutual Funds?
Are Mutual Funds Sitting Ducks? S. Shive and H. Yun A version of the paper can be found here. Want a summary of academic papers with [...]
Post Earnings Announcement Drift and Value/Growth Anomaly
When Two Anomalies Meet: The Post – Earnings Announcement Drift and the Value – Glamour Anomaly Yan and Zhao A version of the paper can [...]
Do Hedge Funds Destroy Investor Value?
The Cost of Capital for Alternative Investments J Jurek and E Stafford A version of the paper can be found here. Want a summary of academic [...]
Alliances and Return Predictability
Alliances and Return Predictability Cao, Chordia, and Lin A version of the paper can be found here. Want a summary of academic papers with alpha? Check [...]
Earnings Growth Rate Mean-Reversion–it’s Science
We're often asked: Why does value investing work? You guys simply buy crappy high-risk companies. Of course you outperform. I typically agree with claims that [...]
Has Momentum Been “Arbed” Away?
Momentum Has Not Been 'Overgrazed': A Visual Overview in 10 Slides Claude B. Erb A version of the paper can be found here. Want a summary [...]
Behavioral Bias Bingo: “Knew it all along” bias
Hindsight bias: How we overestimate our prediction abilities People tend to overestimate their own predictive power when events have already occurred. This is commonly known [...]
Growth Beats Value…but with a lot of help!
When Growth Beats Value: Removing Tail Risk From Global Equity Momentum Strategies Clare, Seaton, Smith, and Thomas A version of the paper can be found here. [...]
Trusting Your Financial Advisor: Beware of your Behavioral Bias
Financial advisers are ubiquitous in the US, where many investors hire them to assist with investing, financial planning and other types of financial decision-making. Advisers [...]
Behavioral Bias Bingo – Hyperbolic Discounting, Present Bias and the Disposition Effect in Investing
Hyperbolic discounting and Present bias Executive Summary: "Intertemporal tradeoffs are ubiquitous in decision making, yet preferences for current versus future losses are rarely explored in [...]
Behavioral Bias Bingo — Ellsberg / Allais paradoxes: choice under uncertainty
Human beings crave certainty and loath ambiguity. People naturally gravitate towards the "sure thing" versus another option where the outcome is uncertain. Sometimes this is [...]
NBA Draft Lottery … and lottery stocks
Tonight is the NBA draft lottery. As a 76ers fan, I will be rooting for them to get the first overall selection. Of course gaining [...]
Introduction to Behavioral Finance – Part 2: Limits of Arbitrage
In the first part of our series, “Introduction to Behavioral Finance – Part 1: Behavioral Bias,” we explored several market anomalies, and the first required condition for the real-life implementability of many quantitative strategies: the existence of human behavioral biases. In this Part 2 of our series, we consider a related question following from our Keynes example: given that certain behavioral biases can affect investors, how can it be that their effects persist in markets so we can take advantage of them? This would seem to contravene the notion of efficient markets, and leads to the second required condition for implementing a tradable strategy: limits to arbitrage.
P/E Performance in Australia and New Zealand
The Predictive Ability of P/E Ratio: Evidence from Australia and New Zealand Basu and O'Shea A version of the paper can be found here. Want a [...]
Introduction to Behavioral Finance – Part 1: Behavioral Bias
In this blog post, Part 1 of our two part series on Behavioral Finance, we explore human behavioral biases, how they affect us as investors, and how they are reflected in the stock market. In Part 2 of our series, we will explore the second required ingredient for profiting from behavioral bias: Limits of Arbitrage. Human behavior is diverse and complex and, unfortunately, despite our best intentions, it is not always governed exclusively by rationality. In particular, our judgment and decision-making can be significantly affected by intuition, a form of abstract, automatic thinking that can override our reason. Decades of research in psychology have shown that intuition is often systematically biased, and follows identifiable patterns, causing us to reach conclusions that are predictable wrong, since they are based on our gut or instincts, rather than on logic. An important aspect of behavioral biases is that they affect us in areas of our lives where it is very important that we be purely rational, such as in investing. In this blog post, we highlight a number of behavioral biases, and specifically how they can affect investors. Before getting into the specifics, we wanted to review some background we hope will be informative, and put the biases into an appropriate investing context.
Does Value Investing Work in the Technology Sector?
A recent blog post suggests that value investing in the tech sector is a waste of time. The article tells a compelling story and argues for 2 points: Successful tech stock investing is done when the stocks are dear, not when they are cheap. Tech companies should not get credit for huge piles of cash on their balance sheets. The author then makes the claim that you can't make big money in cheap tech stocks and buying cheap tech doesn't work. We thought the blog post was thought-provoking and it inspired us to conduct a quick empirical analysis to ascertain if there was any truth to the claims.