How Market Volatility Affects Our Brains
The current market volatility is justifiably causing people stress. Nobody wants to see their hard-earned wealth get vaporized. But how does increased stress affect decision-making? A [...]
Rise of the Machines: Predicting Winners and Losers on the Robo-Advisor Battlefield
Robos are changing the landscape of financial services and consumers will reap the rewards. But will the computers replace humans? Unlikely. The psychology coach benefit is hard to replicate with a computer. However, robos will encourage human-based advisors to up their game. Slothosaurus will go extinct—thankfully! First iteration passive robo-advisors will create a lot of value for consumers, but capture little value for their VC investors, unless perhaps they are bought out. Finally, differentiated robo advisors and traditional advisors who embrace technology will score big wins for both consumers and their shareholders.
Combining Value and Momentum in Stock Selection and Market Timing
Recently, we wrote two posts about how to combine Value and Momentum for stock selection purposes (Part 1 and Part 2). We followed this piece with a post [...]
Crisis Alpha: Surprising Ways to Hedge Stock Portfolio Risk
Investing in the current environment is difficult. Most, if not all, asset classes have high nominal prices, suggesting low nominal expected returns. Not exactly exciting. [...]
Avoiding the Big Drawdown with Trend-Following Investment Strategies
Simple timing rules, focused on absolute and trending asset class performance, seem to be useful in a downside protection context. Our analysis of the downside protection model (DPM), applied on various market indices, indicates there is a possibility of lowering maximum drawdown risk, while also offering a chance to participate in the upside associated with a given asset class. Important to note, applying the DPM to a portfolio will not eliminate volatility and the portfolio will deviate (perhaps wildly) from standard benchmarks. For many investors, these are risky propositions and should be considered when using a DPM construct.
Daily Academic Alpha: Warren Buffett Market Predictions
Last week we had a fairly long post on a valuation based asset allocation strategy that might actually work. This post followed a couple of [...]
Betting Against Days to Cover
Days to Cover and Stock Returns Hong, Li, Ni, et al. A version of the paper can be found here. Want a summary of academic papers [...]
Eureka! A Valuation-Based Asset Allocation Strategy that Might Work
We've had a few posts showing that asset allocation systems relying on market valuation indicators (e.g., Shiller CAPE ratios) as a timing signal may end up [...]
Book Review: Cracking the Emerging Markets Enigma by Andrew Karolyi
A recent IMF World Economic Outlook survey projected that in 2015-2016 advanced economies will grow at 2%-2.5% rate, while emerging and developing markets are growing [...]
Book Review: A Wealth of Common Sense by Ben Carlson
Ben Carlson splashed onto the blog scene a few years ago with his hit website, aptly named, "A Wealth of Common Sense." My initial reaction was, "Oh [...]
The First Academic Paper with a Shotgun Picture in it
Here is one of the figures in a Journal of Finance paper published in 2013 by N. Garleanu and L Pedersen. The figure depicts various [...]
Long/Short Hedge Fund Factors: Low-Cost Downside Protection?
The holy grail of financial markets is finding strategies that have misaligned risk and reward characteristics. In the traditional view, investors try to do the [...]
Sobering 10-Year Market Predictions from CFOs
The Graham-Harvey survey is complete and the expectations of CFOs are available for review. As the figure below highlights, expected returns on the S&P 500 [...]
Where are the Cheap High Quality Value Stocks?
Here is a snapshot of a model portfolio built on the Quantitative Value philosophy. Note: we exclude financials in our analysis, so by construction they have [...]
Tactical Asset Allocation: Beware of Geeks Bearing Formulas
How Should I Tactically Allocate my Assets? A lot of investors ask this question as their wealth grows and the number of financial products grows exponentially. [...]
Performance Attribution for Active ETFs and Active Mutual Funds
Peter Hecht, Ph.D., a fellow Chicago Finance PhD, and vice president of Evanston Capital Management, recently posted an article introducing a practical solution for active portfolios return attribution: [...]
Currency Investing Research: Good Carry, Bad Carry
Good Carry, Bad Carry Bekaert and Panayotov A version of the paper can be found here. Want a summary of academic papers with alpha? Check out [...]
How Smart are “Smart Beta” ETFs?
Many consider smart beta to be a revolution in the asset management industry. For example, Bloomberg ran an article, "Funds Run by Robots Now Accounts for $400 [...]
Tactical Asset Allocation with Market Valuations: Magic of Myth?
Executive Summary Although it has been very difficult to overcome our initial skepticism, we've finally accepted the notion that simple technical analysis may serve as [...]
Tactical Asset Allocation and Low Volatility Stocks
Investing in strategies that exploit the low volatility anomaly have grown in popularity in recent years. While low volatility based strategies may or may not [...]