Should Treasury Bills Be The Risk-Free Asset in Asset Pricing Models?
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 [...]
Combining Value and Profitability Factors to Improve Performance
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, [...]
Equity Trend Following Performance Around the Globe
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 [...]
Lottery Preferences and Their Relationship with Factor Investing
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, [...]
Accruals and Momentum and Their Implications for Factor Investors
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 [...]
Even Great Investments Experience Massive Drawdowns
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 [...]
Cross-Asset Signals and Time-Series Momentum
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 [...]
Is Systematic Value Dead???
Value investing is the age-old investment strategy that buys securities that appear cheap relative to some fundamental anchor.Ronen Israel, Kristoffer Laursen, Scott A. Richardson in [...]
Fundamental Momentum, the Carry Trade, and Currency Returns
Momentum in prices is the tendency of assets that have performed well recently (such as over the prior year) to outperform assets in the same [...]
Left Tail Risk and Left Tail Momentum
The positive trade-off between risk and expected return is the most fundamental concept in financial economics. Most investors are risk-averse. In order to hold higher-risk [...]
Combining Momentum with Long-Term Reversal
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 [...]
Do Option Prices Inform Stock Returns?
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 [...]
Do Interest Rates Explain Value’s Underperformance?
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 [...]
Trend Following is Everywhere
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 [...]
Is There a Tail Risk Premium in Stocks?
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 [...]
Is There Something Wrong with the Value Premium?
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 [...]
Do Insider Trades Provide Insights into Future Returns?
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 [...]
The Gap Between Large and Small Companies is Growing. Why?
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 [...]
The Massive Performance Divergence Between Large Growth and Small Value Stocks
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 [...]
The Idiosyncratic Volatility Puzzle: Then and Now
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 [...]