Diversification is a fundamental principle of prudent investing due to its ability to mitigate/minimize risks. In fact, it has been called the only free lunch in investing because, done properly, it can reduce risk without [...]
The Promises and Pitfalls of Factor Timing Jennifer Bender, Xiaole Sun, Ric Thomas and Volodymyr Zdorovtsov Journal of Portfolio Management A version of this paper can be found here Want to read our summaries of academic [...]
Not long ago I used to teach investment management courses to Master's students (MBAs and MS Finance types). A core aspect of my course was so-called modern portfolio theory. We did a lot of math [...]
When Diversification Fails Sebastien Page and Robert Panariello Financial Analyst Journal, forthcoming A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category What [...]
As everyone who's been invested for the last ten years knows, post-financial crisis stock returns have been incredible. The chart below highlights the total returns for the S&P 500 Index, the MSCI EAFE Index, the [...]
Improving U.S. Stock Return Forecasts: A “Fair-Value” CAPE Approach Joseph Davis, Roger Aliaga-Diaz, Harshdeep Ahluwalia, and Ravi Tolani Journal of Portfolio Management A version of this paper can be found here Want to read our summaries [...]
As you are no doubt experiencing, stock market volatility has spiked this year with the S&P 500 dropping or rising 2% or more on eight different days. Jolts of this size didn't happen at all in [...]
When it comes to trend following and/or time-series momentum research, we got ya covered! A few places to dig in: Evidence for Long-Term Trend-Following by Alpha Architect World's Longest Trend-Following backtest by Alpha Architect Diversification Benefits of [...]
As evidenced by the image below, interest in momentum research has taken off since the original 1993 Jegadeesh and Titman paper: Source: "Two Centuries of Multi-Asset Momentum (Equities, Bonds, Currencies, Commodities, Sectors and Stocks)" [...]
Many people talk about the tax benefits of retirement accounts. However, few attempt to quantify and estimate the actual benefits. To make matters worse, when the topic is addressed, many of the discussions rely on [...]
Professors John Graham and Campbell Harvey consistently put out great research. One of their innovations in financial research is their annual CFO survey (we've covered this research here, here, and here, if interested). In their [...]
When stock prices reach a new high, investors start asking the question: Are stocks overvalued? To answer this question, investors have developed several alternative equity valuation models. Typically, each of these models compares the stock [...]
The academic research has generally found valuations, such as the earnings yield (E/P) (or the CAPE 10 earnings yield) and valuation spreads, have predictive value in terms of future returns. The higher the earnings yield, [...]
Most long-term approaches to investing, like tactical asset allocation or factor investing, are designed to trade infrequently, generally once a month or once a quarter. This is a feature, not a limitation. Trading infrequently forces [...]
Our firm Allocate Smartly provides independent analysis of Tactical Asset Allocation (TAA) strategies. TAA strategies dynamically allocate to broad asset classes like stock indices, bond indices or gold. Unlike a traditional buy & hold portfolio, TAA is able to increase [...]
In this piece I examine various way in which an investor can think about their active market timing decisions, often labeled with the innocuous term "rebalancing." Rebalancing a portfolio is the finance version of "eat [...]
U.S. stocks have delivered incredible stock market returns for a long time: the average compounded total return on the U.S. stock market has been nearly 10 percent per year from 1927 through 2016 (Using data from Ken [...]
In 2015, Cliff Asness made the case that to earn attractive returns with proper risk-based diversification and low correlation to traditional markets, investors need to embrace ‘the three dirty words in finance,’ which he defined [...]
Jack did a nice recap on a momentum paper last week that looks at using fundamentals (revenue volatility, low cost of goods, and B/M) to help identify the best price momentum stocks.This paper sounds similar to the paper Jack reviewed, but there is a key difference: the researchers are looking at the momentum of the fundamentals, not the absolute value of the fundamentals. The authors compile a fundamental momentum variable by calculating the moving averages of 7 elements:return on equity return on assets earnings per share accrual-based operating profitability cash-based operating profitability gross profitability net payout ratio
How do we identify who is a flash in the pan blogger versus the next Michael Kitces, Josh Brown, or Ben Carlson?We've tried to do our part and help to promote and share research from up and coming "undiscovered" bloggers/writers out there. In our early days, we were helped by long-time bloggers such as Meb Faber and Tadas Viskanta, so we try and return the favor. Recent examples of up and coming guest writers we've highlighted include Dan Sotiroff (now heading to Morningstar!), Aaron Brask, Andrew Miller, Elisabetta Basilico, and Dan Grioli -- all of whom have written interesting and insightful pieces!
