Among the assumptions in the first formal asset pricing model, the CAPM, is that investors are risk-averse, they maximize the expected utility of absolute wealth, and they care only about the mean and variance of [...]
In the course of some research on costs and constraints on momentum strategies, I came across a couple of dueling talks by Wesley Gray and Gary Antonacci, hosted by QuantCon NYC in 2017. During his [...]
The volume of work that has been done on insider transactions is not inconsequential, we've covered a variety of research on the topic in several blog posts just a few of which are here and [...]
There is a substantial body of evidence linking various accounting ratios to expected stock returns. One explanation of the links is that they could be explained by the accounting ratios being associated with systematic sources [...]
The collapse in interest rates, combined with historically high valuations (at least for U.S. stocks), have led many endowments, pension plans (especially those with large unfunded liabilities) and high net worth investors (such as those [...]
What is the relationship between insider trades and anomalies? Anginer, Hoberg and Seyhun A version of the paper can be found here. Want to read our summaries of academic finance papers? Check out our Academic Research [...]
Cash Flow Duration and the Term Structure of Equity Returns Michael Weber A version of the paper can be found here. Want to read our summaries of academic finance papers? Check out our Academic Research Insight category. What [...]
Reconsidering Returns Samuel M Hartzmark, David H. Solomon 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 are the Research Questions? [...]
What Induces Children to Save (More)? Moritz Lukas (University of Hamburg) and Markus Nöth (University of Hamburg) A version of this paper can be found here Want to read our summaries of academic finance papers? Check [...]
We can define popularity as the condition of being admired, sought after, well-known, and/or accepted. One would think popularity is a good thing. However, when it comes to investing, the research shows that along with [...]
One of the mistakes that prevent investors from achieving their goals is that when it comes to evaluating investments and investment strategies most think that three years is a long time, five years a very [...]
In this week's post, we discuss two posts. The first post, written by Elisabetta, examines a new method attempting to directly measure aggregate investor overconfidence. The second post, written by Larry Swedroe, examines issues that [...]
Aggregate Investor Confidence in the Stock Market Christoph Meier Journal of Behavioral Finance, 2018 A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research [...]
A good friend, Sherman Doll, related the following story. Sherman has been a two-line sport kite flier for years. While not a pro, he has learned a few tricks from observing the flying behavior of [...]
As my co-author Andrew Berkin, the director of research for Bridgeway Capital Management, and I explain in our new book, “Your Complete Guide to Factor-Based Investing,” there is considerable evidence of cross-sectional return predictability. Citing [...]
The first prediction in the paper is that "Capital Gains and Dividends Viewed as Distinct Desirable Attributes". But what does that mean? The authors highlight that when assessing stock positions, an investor has two options for how to assess the performance -- (1) simple price appreciation/depreciation or (2) total return. Note that price appreciation/depreciation is simply the price appreciation/depreciation on the position, while total return includes both the price appreciation/depreciation plus the dividend return. Directly from the paper: For many positions, either price changes or returns including dividends will yield the same category of gain or loss. However, some positions are at a gain when dividends are included, but at a loss without their inclusion. Do investors treat such positions as being at a gain or at a loss when evaluating whether to sell the position? This is equivalent to asking whether investors adjust for the mechanical decrease in shares price that results from dividend payments.
One of the great debates in finance is whether the source of the value premium is risk-based or a behavioral anomaly. In our book, “Your Complete Guide to Factor-Based Investing,” my co-author Andrew Berkin and [...]
Why do CEOs decide to pay dividends? That is an interesting question, and one that academics have been researching for years. Miller and Modigiliani in 1961 show that if one assumes perfect and efficient capital [...]
A new paper, "Facts about Formulaic Value Investing," is making the rounds and professes to plunge a dagger directly into the heart of systematic value investors. Half of my inbox is filled with questions regarding this [...]
David Smith, Na Wang, Ying Wang and Edward Zychowicz contribute to the literature on momentum with their paper, “Sentiment and the Effectiveness of Technical Analysis: Evidence from the Hedge Fund Industry,” which was published in the December 2016 issue of the Journal of Financial and Quantitative Analysis. Their work examines how investor sentiment affects the effectiveness of technical analysis strategies (which include the use of moving averages as well as momentum) used by hedge funds (which are considered sophisticated investors). The study was motivated by prior research that has focused on “investor sentiment,” which is the propensity of individuals to trade on noise and emotions rather than facts. Sentiment causes investors to have beliefs about future cash flows and investment risks that aren’t justified. Two researchers, Malcolm Baker and Jeffrey Wurgler, constructed an investor sentiment index based on six measures: trading volume as measured by NYSE turnover; the dividend premium (the difference between the average market-to-book ratio of dividend-payers and non-payers); the closed-end fund discount; the number and first-day returns of IPOs; and the equity share in new issues. Data is available at through Wurgler and New York University.
