Behavioral Finance

Do Short-Term Factor Strategies Survive Transaction Costs?

By |September 5th, 2023|Transaction Costs, Research Insights, Factor Investing, Basilico and Johnsen, Academic Research Insight, Behavioral Finance, Momentum Investing Research|

Short term return anomalies are generally dismissed in the academic literature "because they seemingly do not survive after accounting for market frictions.” In this research, short term “factors” are taken seriously and the authors argue the standard parameters may not apply for short horizons.

Female execs bring more accuracy to analysts’ earnings forecasts

By |July 24th, 2023|ESG, Research Insights, Women in Finance Know Stuff, Basilico and Johnsen, Academic Research Insight, Behavioral Finance|

The results of this research extend the literature in a number of areas including: the analyst forecast literature; the literature on behavioral accounting and finance with respect to corporate decision-making all in the context of gender; and the dominant role of the CEO on information transparency.

Individual Investor Behavior: What Does the Research Say?

By |July 22nd, 2022|Research Insights, Academic Research Insight, Behavioral Finance|

Many market commentators, financial advisors, and professionals are quick to point that that individuals are terrible investors. Of course, it's not exactly clear that professionals are much better than individuals, but it is certainly true that most investors should simply buy low-cost index funds (or factor funds!) and gets their hands out of the cook jar. What's nice about this paper is that the assertions that individuals are poor investors -- and exactly why they fail to do well -- are backed by peer-reviewed research. One can leverage these insights to help investors find solutions that will solve their problems and put them in a better position to be successful.

Short Sellers Are Informed Investors

By |July 21st, 2022|Research Insights, Larry Swedroe, Academic Research Insight, Behavioral Finance|

Using multiple short sale measures, we examine the predictive power of short sales for future stock returns in 38 countries from July 2006 to December 2014. We find that the days-to-cover ratio and the utilization ratio measures have the most robust predictive power for future stock returns in the global capital market. Our results display significant cross-country and cross-firm differences in the predictive power of alternative short sale measures. The predictive power of shorts is stronger in countries with non-prohibitive short sale regulations and for stocks with relatively low liquidity, high shorting fees, and low price efficiency.

Can Investment Flows Affect Prices? Yep.

By |March 25th, 2022|Dividends and Buybacks, Price Pressure Factor, Research Insights, Factor Investing, Academic Research Insight, Behavioral Finance, Tactical Asset Allocation Research|

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?

Employee Satisfaction and Stock Returns

By |March 24th, 2022|ESG, Intangibles, Research Insights, Factor Investing, Larry Swedroe, Academic Research Insight, AI and Machine Learning, Behavioral Finance|

“Employees are our greatest asset” is a phrase often heard from companies. However, due to accounting rules requiring that most expenditures related to employees be treated as costs and expensed as incurred, the value of employees is an intangible asset that does not appear on any balance sheet. That leaves the interesting question of whether employee satisfaction provides information on future returns.

Empowering Investors Through Education Actually Works!

By |January 18th, 2022|Research Insights, Basilico and Johnsen, Academic Research Insight, Behavioral Finance|

Empowering investors through education is a foundational tenet of our firm and a big reason why we write these posts. The article we cover here is a meta-analysis 76 randomized studies on the impacts and design of financial education, a topic we've hit on before. It' almost cliche now to hear parents and educators demand schools take the initiative to make financial education a high priority. However, it's reasonable to ask, does financial education even work?

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