Machine Learning and The Cross-Section of Emerging Market Stock Returns
The paper documents that return forecasts from machine learning methods lead to superior out-of-sample returns in emerging markets.
Optimal Trend Following Rules in Two-State Regime-Switching Models
We examine trend-following rules when the stock returns follow a two-state process that randomly switches between bull and bear markets.
Bias in Beta and Implications for Empirical Asset Pricing
In this article, the author examines several important questions related to asynchronous trading, or the variation in trading frequency that occurs when trading stocks or other assets.
Options Hedging & Leveraged ETFs in Market Swings
Earlier this year, GameStop stock rose like crazy in only a few hours with the effects of broker-dealer options hedging spurred by retail investor buying pressure. And from February to March 2020, options trading activity was also pointed to as a contributor to stock swings in the Covid-19 selloff. The market dropped 30% and then recovered quickly over the following weeks. It has been documented that the need for market makers to hedge their positions with options (given rapid changes in stock prices) can contribute to market and stock price swings. However, might there be other factors also at play in these types of stock and market fluctuations?
Life Insurance Instruments May Help Improve After-Tax Wealth
Fee-only fiduciary advisors often summarily dismiss the use of life insurance solutions as financial planning tools—perhaps due to past experiences trying to get clients out of poorly structured, high expense policies. In this post, Colva Actuarial Services and Colva Capital principal Rajiv Rebello explains how fiduciary advisors can properly structure life insurance products and utilize low-expense/no-commission products to provide better after-tax diversification and returns for the fixed income portion of their clients’ portfolios as opposed to investing in bonds directly.
An Introduction to Investing in Carbon Markets
Carbon markets are quickly making their way to the forefront of Environmental, Social, and Governance (ESG) investing, as well as the finance community as a whole. The Kraneshares Global Carbon ETF, (Ticker: KRBN) (whose holdings I’ll dive into shortly) was one of the top 5 performing ETFs in 2021 on a % return basis (Ferringer, Best performing ETFs of the Year - etf.com). However, it doesn’t appear that 2021 was a one-hit-wonder for Carbon Markets, but instead, the beginning of a new and very real trend.
ETF Tax Efficiency isn’t Always Efficient
Compared to mutual funds or separately managed accounts, ANY benefit from redeeming in-kind is a bonus. That being said, not all ETFs and situations are created equal when it comes to tax efficiency, and the "golden rule" always applies - when given the option, the IRS wants to create scenarios where they receive tax dollars now instead of later. Here are some big-ticket items that cause inefficiencies (read as taxes…), many related to the “golden rule” above.
Trend-Following Filters – Part 5
There are two general types of Kalman filter models: steady-state and adaptive. A steady-state filter assumes that the statistics of the process under consideration are constant over time, resulting in fixed, time-invariant filter gains. The gains of an adaptive filter, on the other hand, are able to adjust to processes that have time-varying dynamics, such as financial time series which typically display volatility and non-stationarity.
Machine Learning: The Recovery of Missing Firm Characteristics
Firm characteristics are often missing, which forces both researchers and practitioners to come up with workarounds when handling missing data. Previous approaches resorted to either dropping observations with missing entries or simply imputing the cross-sectional mean of a given characteristic. As both procedures accompany serious drawbacks (see below), there is a need for more advanced methods. The authors set up an attention-based machine learning model, motivated by recent advances in natural language to find some answers
Trend-Following Filters – Part 4
This article considers a different type of filter called the Kalman filter. The Kalman filter is a statistics-based algorithm used to perform the estimation of random processes. Our research will explain what Kalman Filters are and utilize them with financial time series data for trend following purposes.
Smarter in 10 Minutes with Matt Topley
Time to get smarter in less than 10 minutes.
Welcome to our weekly series, "Smarter in 10 Minutes." This weekly series is aligned with our mission to empower investors through education and is curated by Matt Topley, a 25yr+ vet in the business who currently runs Lansing Street Advisors.
Matt wakes up "Jocko style" every morning and shoots out a daily newsletter (I'm a loyal reader!). The weekly "Smarter in 10 Minutes" is a lower frequency version of his daily newsletter.
Should We Never Invest in Individual Stocks?
Due to the surprising headline that treasury bills seemingly outperform stocks, practitioners are starting to ask: Should I invest in individual stocks?
Using Machine Learning to Predict Options Returns
Option Return Predictability with Machine Learning and Big Data Bali, Beckmeyer, Moerke, WeigertA version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic Research Insight category [...]
Relative Sentiment and Market Returns
Market Returns and A Tale of Two Types of Attentions Da, Hua, Hung, and PengA version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic [...]
Leading EMH Economist John Cochrane Suggests that Advisor Fees Might be Justified
Sorry for the clickbait, but Hoover Institute fellow and “Grumpy Economist" John Cochrane's answers to the seemingly benign question, "How should long-term investors form portfolios," is too important to both advisors and academics to overlook. [...]
How to NOT Sound like a Washing Machine Salesman on LinkedIn
I’m constantly hearing from financial advisors who are getting nowhere on LinkedIn, despite having invested considerable time and money. In this post, I'll provide some guidance on how to avoid sounding like the typical (boring) [...]
Selling a Business? Here are 8 Ways to Minimize Your Taxes:
When an owner sells their business, the IRS and state taxing authorities will be there to take as much of it as they lawfully can. This one sale can lead to the largest tax payment [...]
This Time is Different? Consider Quantifying Subjective Priors
This time is different. --John Templeton "This time is different," is a sentiment that leads many investors to stray from using data analysis in their investment decision process and more towards discretionary judgment. The logic [...]
Are Ben Graham’s Disciples Value and Quality Factor Investors?
I examine the performance records of performance of Ben Graham's well-known disciples: Walter Schloss, Tom Knapp, Warren Buffett, Bill Ruane, Charlie Munger, Rick Guerin, and Stan Perlmeter. The research question I seek to address is [...]
Bond Ladders and Income Annuities: Simple is Beautiful
I spent some time on Google, but could not ascertain the origins of the term fixed income. Presumably, it was created to describe investments where cash flows are dictated via a contractual obligation. A simple [...]