Larry Swedroe

///Larry Swedroe

How a Multi-factor Portfolio is Constructed Matters

By |2018-10-10T10:27:23+00:00October 11th, 2018|Research Insights, Factor Investing, Larry Swedroe|

The CAPM was the first formal asset-pricing model. Market beta was its sole factor. With the 1992 publication of their paper, “The Cross-Section of Expected Stock Returns,” Eugene Fama and Kenneth French introduced a new-and-improved [...]

How Leverage Constraints Effect Mutual Fund Risk Taking

By |2018-09-14T15:56:24+00:00September 13th, 2018|Research Insights, Factor Investing, Larry Swedroe, Low Volatility Investing|

The 2014 study by Andrea Frazzini and Lasse Heje Pedersen, “Betting Against Beta,” found strong support for low-beta strategies. I’ve previously written on low-beta strategies here. This paper finds that, for U.S. stocks, the betting [...]

The Value Effect and Macroeconomic Risk

By |2018-01-09T09:26:25+00:00January 9th, 2018|Research Insights, Larry Swedroe, Guest Posts, Value Investing Research|

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 that premium: Is it risk-based or is it related to [...]

The Tax Efficiency of Long-Short Strategies

By |2017-12-28T07:07:09+00:00December 28th, 2017|Research Insights, Larry Swedroe, Tax Efficient Investing|

Conventional wisdom can be defined as ideas that are so accepted that they go unquestioned. Unfortunately, conventional wisdom is often wrong. Two great examples are that millions of people once believed the conventional wisdom that [...]

The Returns to Value Strategies When Valuation Spreads Are Wide (Deep Value)

By |2017-12-20T21:43:21+00:00December 21st, 2017|Research Insights, Larry Swedroe, Value Investing Research, Tactical Asset Allocation Research|

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 in terms of future returns. The higher the earnings yield, [...]

Factor Timing Investigation: Interest Rates, Value Spreads, and Factor Premiums

By |2017-09-22T09:34:38+00:00September 22nd, 2017|Research Insights, Factor Investing, Larry Swedroe, Guest Posts|

Now that the Federal Reserve has begun the process of raising interest rates, and has announced their intention to begin to unwind their policy of quantitative easing (reducing the amount of bonds in their portfolio, [...]

Short Term Momentum and Long Term Reversals Can Coexist

By |2017-08-28T10:27:32+00:00August 30th, 2017|Research Insights, Factor Investing, Larry Swedroe, Other Insights, Momentum Investing Research|

In their seminal 1993 paper, “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency,” Narasimhan Jegadeesh and Sheridan Titman reported significant returns to buying winners and selling losers in the U.S. equity [...]

Diversification Benefits of Time Series Momentum

By |2017-08-18T17:06:44+00:00August 10th, 2017|Research Insights, Larry Swedroe, Trend Following|

Similar to some better-known factors like size and value, time-series momentum is a factor that historically has demonstrated above average excess returns. Time-series momentum, also called trend-momentum or absolute momentum, is measured by a portfolio long assets that have had recent positive returns and short assets that have had recent negative returns. Compare this to the traditional (cross-sectional) momentum factor that considers recent asset performance only relative to other assets. The academic evidence suggests that inclusion of a strategy targeting time-series momentum in a portfolio improves the portfolio’s risk-adjusted returns.

Do Security Analyst Recommendations Bet on or Against Academic Findings?

By |2017-10-16T08:10:03+00:00July 6th, 2017|Research Insights, Larry Swedroe, Behavioral Finance|

As my co-author Andrew Berkin, the director of research for Bridgeway Capital Management, and I explain in our new book, “Your Complete Guide to Factor-Based Investing,” there is considerable evidence of cross-sectional return predictability. Citing [...]

Active Share: Does it Predict Fund Performance?

By |2017-08-18T17:10:54+00:00June 15th, 2017|Factor Investing, Larry Swedroe, Active and Passive Investing|

The Holy Grail for mutual fund investors is the ability to identify in advance, which of the active mutual funds (or ETFs nowadays) will outperform in the future. The evidence suggests this task is almost [...]

The Value Premium: Risk or Mispricing?

By |2017-08-18T16:55:06+00:00May 24th, 2017|Research Insights, Larry Swedroe, Other Insights, Behavioral Finance, Value Investing Research|

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 Complete Guide to Factor-Based Investing,” my co-author Andrew Berkin and [...]

Swedroe Spotlight: Enhancing Momentum Strategies Via Idiosyncratic Momentum

By |2017-08-18T16:56:29+00:00May 2nd, 2017|Research Insights, Factor Investing, Larry Swedroe, Guest Posts, Momentum Investing Research|

Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. The momentum effect [...]

Swedroe Spotlight: Does Market Sentiment Help Explain Momentum?

By |2017-08-18T16:56:30+00:00April 17th, 2017|Research Insights, Larry Swedroe, Guest Posts, Behavioral Finance, Momentum Investing Research|

David Smith, Na Wang, Ying Wang and Edward Zychowicz contribute to the literature on momentum with their paper, “Sentiment and the Effectiveness of Technical Analysis: Evidence from the Hedge Fund Industry,” which was published in the December 2016 issue of the Journal of Financial and Quantitative Analysis. Their work examines how investor sentiment affects the effectiveness of technical analysis strategies (which include the use of moving averages as well as momentum) used by hedge funds (which are considered sophisticated investors).The study was motivated by prior research that has focused on “investor sentiment,” which is the propensity of individuals to trade on noise and emotions rather than facts. Sentiment causes investors to have beliefs about future cash flows and investment risks that aren’t justified. Two researchers, Malcolm Baker and Jeffrey Wurgler, constructed an investor sentiment index based on six measures: trading volume as measured by NYSE turnover; the dividend premium (the difference between the average market-to-book ratio of dividend-payers and non-payers); the closed-end fund discount; the number and first-day returns of IPOs; and the equity share in new issues. Data is available at through Wurgler and New York University.

Swedroe Spotlight: Explaining the Low Risk Effect

By |2017-08-18T16:56:28+00:00February 21st, 2017|Research Insights, Larry Swedroe, $usmv, Guest Posts, $iwb, $SPLV, Low Volatility Investing|

Before proceeding, it’s important to note that beta and volatility are related, though not the same. Beta depends on volatility and correlation to the market, whereas volatility is related to idiosyncratic risk (see here for an explanation of how to calculate the different measures).The superior performance of low-volatility and low-beta stocks was first documented in the literature in the 1970s — by Fischer Black (in 1972) among others — even before the size and value premiums were “discovered.” And the low-volatility anomaly has been shown to exist in equity markets around the world. Interestingly, this finding is true not only for stocks, but for bonds as well. In other words, it has been pervasive.

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