Timing Country Exposure with Value: A Valuation Measure Horserace
Buy cheap. This is a motto many live by, not only in their daily lives but also in their investment philosophy. Historically, "buying cheap" stocks [...]
Do Relative-Value Strategies Beat Traditional Systematic Value Investing Strategies?
Readers often send us great questions related to different ideas on systematic value strategies. The outcome of years of back and forth with readers and [...]
Explaining the Value Effect in Emerging Markets
Explaining the Value Effect in Emerging Markets: Tangible vs Intangible Information Douglas W. Blackburn and Nusret Cakici A version of this paper can be found here. [...]
Value and Momentum Factor Portfolio Construction: Combine, Intersect, or Sequence?
Wes asked that I contribute to the ongoing debates regarding the construction of value and momentum portfolios. There are three key research pieces on [...]
The Value Effect and Macroeconomic Risk
It has been well-documented that value stocks have provided higher expected returns than growth stocks. However, there is a great debate about the source of [...]
The Returns to Value Strategies When Valuation Spreads Are Wide (Deep Value)
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 [...]
Historical Finance Fight: Ben Graham versus H.M. Gartley
Reading really old research is humbling. https://archive.org/ is an awesome place to start. One quickly recognizes that market participants were very savvy way back in the [...]
Do Portfolio Factors or Characteristics Drive Expected Returns?
This article examines a somewhat overlooked, but important, discussion that raged among academic researchers on the source of the value investing premium in the late 1990s and early 2000s—the topic: factors vs characteristics.
Factor Investing with Factor Expert Lu Zhang
Replicating Anomalies is arguably a "must-read" for anyone who thinks about factor investing and is looking to improve their understanding of the space. Lu Zhang, [...]
Academic Research Insight: Stick to the Fundamentals and Discover Your Industry Peers
Stick to the Fundamentals and Discover Your Peers Jean Overgaard Knudsen, Simon Kold and Thomas Plenborg A version of this paper can be found here Want [...]
A Fund Flows Theory for Value and Momentum Investing
Value and Momentum Investing -- our two favorite factors. We talk about these phenomena on our blog all the time, and have given both rational and behavioral explanations as to why these may occur. However, very few in the finance community are direct investors into Value and Momentum securities -- the individual stocks (or bonds) themselves. Many use ETFs or mutual funds to gain access to these factors. Institutions generally do the same, either investing in hedge funds or managed accounts. This is delegated asset management, whereby one delegates the decision of the security selection onto a third-party manager. A by-product of delegation is that from time to time, the third-party manager must be assessed. While many may claim the process is most important, the performance is always taken into consideration. So what happens to a Value manager who is overweight the wrong industry? While the manager may be following the same process discussed ex-ante, the ex-post assessment may be that the manager needs to be fired due to underperformance.
Replicating Anomalies
Academic research is amazing and incredibly useful for helping us better understand the complex world in which we live. In fact, academic research has literally [...]
Reconciling Individual Stock Returns and Factor Portfolio Returns
Those in the financial media have recently been writing multiple stories on a fascinating working paper, "Do Stocks Outperform Treasury Bills?" by Hendrik Bessembinder. We [...]
Ben Graham on Passive Investing
The passive investing revolution is truly upon us. Ever since 1975, when Jack Bogle introduced the first index mutual fund, passive indexing has marched on [...]
Portfolio Allocations using Enterprise Multiples (and others)
A common question asked in the factor investing field is the following -- "how much of the model's performance is driven by sector allocations, and how much is driven by security selection?" Our answer is to simply buy Value stocks or Momentum stocks, regardless of sector constraints. Why? Well a nice anecdote (but not data) is that investing in "cheap" technology stocks was not a great idea in the internet bubble crash.
The Global Value Momentum Trend Philosophy
Our Global Value Momentum Trend Index ("GVMT" or "GVMT Index") is a globally diversified equity strategy that leverages trend-following to manage tail-risks. The strategy can [...]
The Value Premium: Risk or Mispricing?
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 [...]
Chinese Market Anomalies – The Factor Killer?
The Oracle of Omaha just commented on the Chinese stock market in this year's Berkshire's annual meeting: ...Markets have a casino characteristic that has a [...]
“Alternative” Facts about Formulaic Value Investing
A 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 [...]
Value and Momentum Investing in Frontier Stock Markets
Value and Momentum investing have been studied across many different markets and asset classes (Asness et al 2013) and have shown to be effective factors. [...]