Automation and Asset Pricing Theory
In this article about asset pricing theory, we examine the research on the impact of technological advances that displace human labor in favor of machine capital to asset pricing.
Measuring Geopolitical Risk
Although geopolitical risk has traditionally been approached from a qualitative aspect, what makes it a novel risk is the application of innovative techniques to measure it.
Bigger is Not Always Better in Asset Management
Pastor, Stambaugh, and Taylor (2015) and Zhu (2018) provide significant evidence of decreasing returns to scale (DRS) at both the fund and industry levels. The authors examine the robustness of their inferences after Adams, Hayunga, and Mansi (2021) critique the above two studies.
Volatility scaling is useful for factor timing
This paper investigates the effects of volatility scaling on factor portfolio performance and factor timing.
Investing in Deflation, Inflation, and Stagflation Regimes
In this article, we examine the research on investing during inflationary regimes such as deflation, inflation, and stagflation. Factors perform relatively well in all regimes on a real basis.
Want to Get on a Corporate Board? Who You Know Matters
Here's what the research says about how to get on a board of directors.
Does Momentum work in Option Markets?
This paper explores the question of option momentum by examining what the research says about the performance of option investments across different stocks.
Is there a theoretical foundation behind industry and factor momentum
Industry and factor momentum should be viewed as recent developments in the wider momentum story, although these aggregated measures of momentum lack any theoretical foundation.
The Cross Section of Stock Returns Pre-CRSP data: Value and Momentum are confirmed as robust anomalies
We study the cross-section of stock returns using a novel constructed database of U.S. stocks covering 61 years of independent data.
Momentum Factor Investing: 30 years of Out of Sample Data
In this article, the author examines the research published over the last 30 years on momentum and its theoretical credibility. One of the original momentum articles was published by Jegadeesh and Titman in 1993, and is considered the seminal work on the topic. The research review contained in this publication begins with the 1993 work and confines itself to only the highest quality journals among the plethora of work that has been published on momentum.
Are ESG strategies more effective for societal impact or performance?
In this article, we examine the research addressing the question of to what extent, if any, ESG strategies improve investment performance on a risk-adjusted basis, or if they are more effectively used for the societal impact they potentially have.
Is Democracy better for the stock market?
We examine the question of whether or not democracy leads to better possible outcomes for the stock market.
Pulling the curtain back: what do millionaires invest in?
In this article, we examine the academic research about what millionaires invest in.
Does Gender Affect Reactions to Market Sentiment Shifts?
Does gender matter in institutional investing?
Gender Pay Gap Transparency
In this article, we examine what the research says about gender pay gap transparency. We look at the research questions and academic insights with an eye toward why it matters.
Should Levered and Inverse ETFs Even Exist?
In this article, we explore Levered and Inverse ETPs (exchange-traded products); their purpose, the circumstances in which they tend to succeed and fail, and the research questions associated with them.
Is Momentum a Separate Factor?
We find that factor momentum concentrates in factors that explain more of the cross section of returns and that it is not incidental to individual stock momentum: momentum-neutral factors display more momentum.
ESG Ratings how do they Compare Across Data Providers?
Investments aligned with environmental, social, and governance (ESG) principles are rapidly growing globally. In the exchange traded fund (ETF) industry, this gives rise to the power of ESG rating firms that have the influence to direct capital flows into ETFs tracking the indexes. This article examines the issues of substantial ESG rating divergence across rating firms, the impact on investors’ choices, and the influence on the ETF industry. The divergence appears to be the greatest in social and governance components, and is often qualitative in nature. The author found that certain economic sectors are more prone to ESG rating divergence than others. She presents a case study about two ESG ETFs that are viewed quite differently under various rating lenses, and offers suggestions to investors, advisors, and analysts on how to research ESG ETFs, given the major rating divergence. The article concludes with ways the ETF industry could improve its practices collectively to better serve investors with clarity and to sustain the growth of ESG impact investments.
Do Equity Markets Care About Income Inequality?
Do equity markets care about income inequality? We address this question by examining equity markets’ reaction and investors’ portfolio rebalancing in response to the first-time disclosure of the ratio of CEO to median worker pay by U.S. public companies in 2018. We find that firms’ disclosing higher pay ratios experience significantly lower abnormal announcement returns. Additional evidence suggests that equity markets “dislike” high pay dispersion rather than high CEO pay or low worker pay. Firms whose shareholders are more inequality-averse experience a more pronounced negative market response to high pay ratios compared to firms with less inequality-averse shareholders. Finally, we find that during 2018 more inequality-averse investors rebalance their portfolios away from high pay ratio stocks relative to other investors. Overall, our results suggest that equity markets are concerned about high within-firm pay dispersion, and investors’ attitude towards income inequality is a channel through which high pay ratios negatively affect firm value.
Is Passive Ownership Bigger than Estimated?
We estimate that passive investors held at least 37.8% of the US stock market in 2020. This estimate is based on the closing volumes of index additions and deletions on reconstitution days. 37.8% is more than double the widely accepted previous value of 15%, which represents the combined holdings of all index funds. What’s more, 37.8% is a lower bound. The true passive-ownership share for the US stock market must be higher. This result suggests that index membership is the single most important consideration when modeling investors’ portfolio choice. In addition, existing models studying the rise of passive investing give no hint that prior estimates for the passive-ownership share were 50% too small. The size of this oversight restricts how useful these models can be for policymakers.