Two of most documented anomalies in the asset pricing literature are the momentum effect and the long-term reversal effect. Momentum is typically defined as the last 12 months of returns excluding the most recent month [...]
In perfectly efficient markets, option prices should not convey any new information or contribute to the price discovery of underlying assets. However, if markets are not perfectly efficient, traders with private information might prefer to [...]
From January 2017 through March 2020, the value premium, defined by HML (the return of high book-to-market stocks minus the return of low book-to-market stocks experienced a drawdown of 42 percent. The team at Buckingham [...]
Similar to some better-known factors, such as size and value, time-series momentum (TSMOM) historically has demonstrated abnormal excess returns. For the less familiar with trend following it's worth your time to review Alpha Architects white [...]
It has been well documented both that stock returns have much fatter tails than a normal distribution would generate, and that tail events occur much more frequently than a normal curve would predict.editor's note: This [...]
The dramatic underperformance of the value premium since 2018, among the largest drawdowns in history, has led many to question its existence. It is certainly possible that what economists call a “regime change” could cause [...]
The volume of work that has been done on insider transactions is not inconsequential, we've covered a variety of research on the topic in several blog posts just a few of which are here and [...]
In my role as chief research officer for the Buckingham Family of Financial Services, I receive many questions from investors and advisors alike, asking me to address concerns they have that originate from articles they [...]
From 2017 through 2019, the Russell 1000 Growth Index returned 20.5 percent per annum, outperforming the Russell 1000 Value Index, which returned 9.7 percent, by 10.8 percentage points a year; and the Russell 2000 Growth [...]
One of the interesting puzzles in finance is that stocks with greater idiosyncratic volatility (IVOL) have produced lower returns (see an earlier post here). This is an anomaly because idiosyncratic volatility is viewed as a [...]
A large body of evidence demonstrates that investment strategies focused on buying stocks that are cheap relative to measures of fundamental value have achieved higher long-term returns than the broad market. Motivated by such legendary [...]
A large body of research demonstrates that “familiarity breeds investment.” For example, a study by Gur Huberman found that shortly after AT&T was broken up and shareholders were given shares in each of what were [...]
There is a substantial body of evidence linking various accounting ratios to expected stock returns. One explanation of the links is that they could be explained by the accounting ratios being associated with systematic sources [...]
Over the past decade academics and practitioners alike have argued that multi-factor portfolios offer significant benefits to investors looking for enhanced and more diversified solutions. Among the papers making this argument is “The Death of [...]
Editor's note: Earlier this week, Lu Zhang discussed his thoughts on the investment factor and expected returns. In this piece, Larry discusses a recent research piece that tells a different side of the story. We [...]
The collapse in interest rates, combined with historically high valuations (at least for U.S. stocks), have led many endowments, pension plans (especially those with large unfunded liabilities) and high net worth investors (such as those [...]
One of the big problems for the first formal asset pricing model developed by financial economists, the CAPM, was that it predicts a positive relation between risk and return. But empirical studies have found the [...]
One of the most well known and most beloved forms of literature is the fairy tale. Although most fairy tales are not about fairies, they are fictitious and highly fanciful tales of legendary deeds and [...]
The variance risk premium (VRP) refers to the fact that, over time, the option-implied volatility has tended to exceed the realized volatility of the same underlying asset. This has created a profit opportunity for volatility [...]
Because equities are much riskier than high-quality bonds, the vast majority of the risk of a conventional 60 percent equity/40 percent bond portfolio is equity risk. Here’s the simple math demonstrating the point. Well-diversified equity [...]
