Other Insights

Submergence: A Tool to Assess Drawdowns and Recoveries

By |May 22nd, 2023|Empirical Methods, Research Insights, Basilico and Johnsen, Academic Research Insight|

According to research by the authors, stocks and bonds have been submerged for about 75% of the time since 1980; and treasuries have been submerged 80% of the time. Submergences are therefore both commonplace and significant, which means that handling them is very important for investors and their investing strategies.

Reducing the Impact of Momentum Crashes

By |May 15th, 2023|Research Insights, Basilico and Johnsen, Academic Research Insight, Momentum Investing Research|

Momentum crashes are a blight on the performance of momentum strategies. Although there has been a fair amount of research on the topic, few practical solutions have emerged to mitigate the impact on portfolios. In this study, the authors document the outperformance of stocks, in terms of momentum, far away from their peak position relative to stocks very near their peaks. Turns out the outperformance is very large. It also accounts for the majority of negative momentum performance.

What are the Best Times for ETF Investors to Trade?

By |May 1st, 2023|Research Insights, Basilico and Johnsen, Academic Research Insight, ETF Investing|

The expense ratio aside, the cost of transacting in an ETF depends on the size of the bid/ask spread at any point in time during the trading day. The ETF investor should make evidence-based trading decisions since the bid/ask spread can range from 1 basis point (bp) to several hundred bps. What are some intelligent guidelines for ETF investors--avoid the open, avoid the close, and what about everything in-between? This article provides data on the effect of the time of day on the average bid/ask spread for ETFs.

How factor exposure changes over time: a study of Information Decay

By |April 17th, 2023|Quality Investing, Factor Investing, Research Insights, Basilico and Johnsen, Academic Research Insight, Value Investing Research, Momentum Investing Research, Low Volatility Investing|

Factor strategies need to be rebalanced in order to maintain their factor exposure. But different factors decay at different rates and this affects how they should be rebalanced. For example, momentum needs to be rebalanced more than value. This study digs into these questions.

Merger Arbitrage as Diversification Strategy

By |April 14th, 2023|Event Driven Investing, Larry Swedroe, Research Insights|

Merger arbitrage is an investment style in which investors seek to buy shares of firms that are acquisition targets with the objective of realizing the difference between the amount for which the target is being acquired and the stock price of the target shortly after the acquisition is announced. The stock price of the target company typically sells below the acquisition price, reflecting the uncertainty of the deal being completed (the arbitrage spread). Betting on mergers is a classic hedge fund arbitrage strategy.

Comparing past and present inflation rates can be tricky

By |March 20th, 2023|Inflation Investing, Research Insights, Basilico and Johnsen, Academic Research Insight|

The objective of this article is to build better estimates of CPI headline and core inflation values so inflation comparisons over time are more reliable.  The run-up in inflation we are currently experiencing is difficult to contextualize because it is inconsistent with past practices, weights on expenditures have changed, and the treatment of housing costs.

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