The dramatic underperformance of value stocks as defined by the HmL (the return on high book-to-market stocks minus the return on low book-to-market stocks) since 2017 has led many to question the existence of the [...]
Since the development of the first asset pricing model, the Capital Asset Pricing Model (CAPM), academic research has attempted to develop models that increase the explanatory power of the cross-section of stock returns. We moved [...]
The grand experiment of combining massive fiscal and monetary stimulus at a time when the economy is already recovering strongly—the Fed’s latest forecast for 2021 GNP growth is 6.5 percent—has led many investors to begin [...]
In recent years the field of empirical finance has faced challenges from papers arguing that there is a replication crisis because the majority of studies cannot be replicated and/or their findings are the result of [...]
Financial economists have long known that volatility and returns are negatively correlated. Fischer Black documented this in his 1976 paper “Studies of Stock Price Volatility Changes.” This relationship results in the tendency to produce negative [...]
Studies such as the 2019 paper “Value Return Predictability Across Asset Classes and Commonalities in Risk Premia,” have demonstrated that while it is difficult to time investments based on their value spreadsThe difference in the [...]
As my co-author Andrew Berkin and I explain in our new book “Your Complete Guide to Factor-Based Investing,” there is considerable evidence of cross-sectional return predictability. Citing more than 100 academic papers, we presented evidence [...]
The existence of a quality premium in stocks that has been persistent over time, pervasive around the globe, and robust to various definitions have been well documented by studies such as “Buffett’s Alpha,” “Global Return [...]
Another Alpha Opportunity Bites the Dust In 1998, Charles Ellis wrote “Winning the Loser’s Game,” in which he presented evidence that while it is possible to generate alpha and win the game of active management, [...]
The predictive abilities of value and momentum strategies are among the strongest and most pervasive empirical findings in the asset pricing literature. (here is a deep dive) For example, the study “Value and Momentum Everywhere” [...]
In his famous 1981 paper, "The Relationship Between Return and Market Value of Common Stocks,” Rolf Banz found that small firms have higher risk-adjusted returns than large firms. This was one of the first major [...]
Robert Novy-Marx’s 2013 paper “ The Other Side of Value: The Gross Profitability Premium” not only provided investors with new insights into the cross-section of stock returns but also helped further explain some of Warren [...]
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. Initial research on [...]
In virtually all studies on asset pricing and asset pricing models, the one-month Treasury bill is the choice as the risk-free rate. In his study “The Risk-Free Asset Implied by the Market: Medium-Term Bonds instead [...]
Prior Research on Value and Profitability Factors The 1997 publication of Mark Carhart’s paper “On Persistence in Mutual Fund Performance” led to the four-factor model, which added momentum to market beta, size, and value, becoming [...]
Time-series momentum (TSMOM) historically has demonstrated abnormal excess returns. Also called trend following, it is measured by a portfolio that is long assets that have had recent positive returns and short assets that have had [...]
Among the assumptions in the first formal asset pricing model, the CAPM, is that investors are risk-averse, they maximize the expected utility of absolute wealth, and they care only about the mean and variance of [...]
The price momentum and accruals (the difference between accounting earnings and cash flows—adjustments made for revenue that has been earned but not received, and costs that have been incurred but not paid) anomalies are two [...]
Editor's Note: The ability of value investors to adhere to their investment strategy has been put to the greatest test ever. From January 2017 through March 2020, in terms of total returns, the Russell 3000 [...]
In their paper “Time Series Momentum,” published in the May 2012 issue of the Journal of Financial Economics, Tobias Moskowitz, Yao Hua Ooi and Lasse Pedersen documented significant time-series momentum (trend) in equity index, currency, [...]
