Other Insights

A New Approach to Regime Detection and Factor Timing

The financial research literature has found that the performance of assets (and factors)  can vary substantially across regimes - factor premiums can be regime dependent.  Unfortunately, the real-time identification of the current economic regime is one of the biggest challenges in finance.

How Tiny Price Differences Help Track Small Investors’ Trades

This article explains how researchers studied small investors' trading habits by looking at tiny price differences, called subpennies, in stock trades. They found that the current method to identify these trades isn't very accurate. By using a new approach, they improved the accuracy, helping to better understand how small investors buy and sell stocks.

Making Factor Strategies Work for Everyone

This article explores the difference between tradable and on-paper (theoretical) risk factors in investing. Risk factors are strategies that help explain stock market returns, but many work only in theory and not in real life.

Enhancing Industry Momentum Strategies: Finding Hidden Neighbors

The main benefit of constructing industry momentum portfolios based on standard ICS is that it is straightforward and reproducible. However, that benefit may come at the cost of accuracy and oversimplification of complex industry relationships between companies.

US Value Stocks Trading at Historically High Discounts

For equity investors there have been two major narratives over the last 17 calendar year period 2008-2024. The first is that US stocks have far outperformed international stocks. The other narrative has been the outperformance of growth stocks relative to value stocks.

Do Women Receive Worse Financial Advice?

A study based in Hong Kong by using undercover auditors found that female clients were more likely to be advised to invest in individual or local securities instead of getting a mix of different investments.

Adverse Effects of Index Replication

The empirical research we have reviewed shows that the (hidden) costs of index construction and rebalancing policies to investors are about 10 times the expense ratios.

How Bond ETFs Make Trading Easier and Cheaper

Bond ETFs have attracted new investors who previously never owned bonds or bond funds. Bond ETFs have made it easier for more people and institutions to start investing in bonds.

Understanding the Stock–Bond Correlation

With over nearly 150 years of data, the study finds that when inflation and interest rates rise, stocks and bonds tend to move together, reducing diversification benefits. This has critical implications for portfolio construction and risk management.

Valuations Reflect U.S. Exceptionalism

US exceptionalism provided the same explanation for the outperformance of US stocks in the 1990s. However, that regime changed. From 2000-2007, while the S&P 500 Index returned just 1.9% per annum (underperforming riskless one-month Treasury bills by 1.3% per annum), the MSCI EAFE Index returned 5.6% per annum, and the MSCI Emerging Markets Index returned 15.3% per annum.

Listing Domicile Driving Valuations

The listing domicile explained about 50% of the valuation gap. In other words, US-listed stocks are substantially more expensive than internationally listed stocks for no reason other than the place of listing.

The Ability to NAV Time Interval Funds

NAV timing investors could potentially create trading strategies which would systematically transfer wealth from buy-and-hold investors to themselves.

A Navy SEAL says Making Better Decisions is SIMPLE.

The following guest piece outlines the SIMPLE framework (SIMPLE) for making better decisions. SIMPLE was developed by a Navy SEAL with combat and business experience. An application of the SIMPLE framework, applied to financial advisors, is at the end of the piece.

Local IPOs and Household Stock Market Participation

This paper seeks to address three pivotal questions that explore the broader economic and social impacts of IPO activity, particularly its role in influencing stock market participation through localized attention and wealth effects.

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