Alpha Architect

Can Investment Flows Affect Prices? Yep.

Traditional finance theory suggests that stocks prices always reflect their fair market values based on publicly available information. Or in academic parlance, the "semi-strong" form efficient markets hypothesis serves as the null. What are the implications of this hypothesis? Well, the hypothesis suggests that the only reason a stock price will move is due to a shift in fundamentals (either through a change in expected cash flows or via the discount rate). But what about supply and demand shifts?

Global Factor Performance: March 2022

Factor Updates for: Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads

DIY Asset Allocation Weights: March 2022

Full exposure to domestic equities. Half exposure to international equities. Full exposure to REITs. Full exposure to commodities. No exposure to intermediate-term bonds.

Does diversification always benefit investors? No.

This article examines the extent to which these assumptions hold and the extent to which investors should want them to hold. The authors deliver a clever quote from Mark Twain (or maybe it was Robert Frost) that nails the issue in simple terms: “Diversification behaves like the banker who lends you his umbrella when the sun is shining but wants it back the minute it begins to rain”. Nicely expressed!

Global Factor Performance: February 2022

The factor performance modules have been updated on our Index website

DIY Asset Allocation Weights: February 2022

Full exposure to domestic equities. Half exposure to international equities. Full exposure to REITs. Full exposure to commodities. No exposure to intermediate-term bonds.

The Best Strategies for Dealing with Inflation? Factors and Trend-Following

Inflation -- what's that? ... It has been quite a while since inflation has been considered a problem. Today, however, the angst surrounding the possibility of a resurgence in inflation is real and “top of mind” for investors. If the current fear becomes a reality, how should investors react? What strategies and asset classes perform well in a rising inflationary environment? If inflation does resurge beyond a temporary phase, how should investors restructure or reposition their portfolios? The purpose of this article is to provide context for those decisions.

Asset Allocation and Private Market (i.e. illiquid) Investing

Allocations to illiquid assets have become increasingly popular requiring asset managers to consider portfolio-wide liquidity characteristics. Although determining the price of illiquidity is a challenge for investors, the construction of a portfolio that includes liquidity constraints can be even more daunting. How do we optimize asset allocation with liquidity as a significant constraint on the portfolio?

DIY Asset Allocation Weights: January 2022

Current Exposures:

Full exposure to domestic equities.
Full exposure to international equities.
Full exposure to REITs.
Full exposure to commodities.
No exposure to intermediate-term bonds.

Interesting Insights into How Endowments Invest

Despite their popularity and the ease of access to university-based endowments, there is little in the academic literature about the history of endowment investing. In this article, the authors aim at filling this gap.

Value investing: What history says about five-year periods after valuation peaks

Value stocks are historically cheap compared to the past. Given this fact, a natural question is the following, "After the last two times Value had a "peak" of the factor being cheap, how did it do the subsequent five years?"

The Relationship Between the Value Premium and Interest Rates

We've been suffering through the deepest and longest drawdown in values history. Looking for a scapegoat to explain the lackluster performance many have pointed to low interest rates as the root cause of the underperformance. The question is have interest rates impacted value in the past?

Global Factor Performance: December 2021

factor performance modules have been updated

DIY Asset Allocation Weights: December 2021

Current Exposures:

Full exposure to domestic equities.
Half exposure to international equities.
Full exposure to REITs.
Full exposure to commodities.
Half exposure to intermediate-term bonds.

The Value of the Value Factor: Cheaper now than a year ago?

About a year and a half ago, after one of the worst relative drawdowns the value factor has ever seen, I wrote a piece showing the value factor was cheap relative to history. Since then, value strategies are on a solid run (look at pretty much any type of value strategy and I think you'd agree). Today? The valuation spread between the cheapest 10% and the universe of stocks is cheaper. We are at levels beyond 1999 by some measures.

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