The Investment Factor and Expected Returns
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 [...]
What Returns Should Investors Expect from Private Equity
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 [...]
Can We Explain the Low Volatility Anomaly?
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 [...]
Structured Notes: The Exploitation of Retail Investors
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 [...]
The Variance Risk Premium is Pervasive
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 [...]
Strategies to Reduce Crash Risk in Stocks
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 [...]
Enhancing the Performance of Momentum Strategies
In “Your Complete Guide to Factor-Based Investing,” Andy Berkin and I presented the evidence demonstrating that momentum, both cross-sectional (or relative) momentum and time-series (or [...]
Is Active Management Skilled? If So, Who Benefits?
According to Christian mythology, the Holy Grail was the dish, plate or cup with miraculous powers that were used by Jesus at the Last Supper. [...]
The Curse of Popularity
We can define popularity as the condition of being admired, sought after, well-known, and/or accepted. One would think popularity is a good thing. However, when [...]
Does Leverage Explain the Investment Premium?
Research demonstrates that the investment factor has explanatory power for the cross-section of stock returns, with high-investment firms tending to underperform low-investment firms. For example, [...]
Volatility Targeting Improves Risk-Adjusted Returns
There’s a large body of research, including the 2017 study “Tail Risk Mitigation with Managed Volatility Strategies” by Anna Dreyer and Stefan Hubrich, that demonstrates [...]
Volatility Anomalies: IVOL and Vol-of-Vol
Two of the more interesting puzzles in finance are related to volatility—stocks with greater idiosyncratic volatility (IVOL) have produced lower returns and stocks with high [...]
Deep Dive into the Value Factor
The financial equivalent of the famous Miller Lite, “tastes great, less filling” debate is the debate between traditional financial economics which uses risk theories to [...]
Investment Strategy in an Uncertain World
In 1921, University of Chicago Professor Frank Knight wrote the classic book “Risk, Uncertainty, and Profit.” An article from the Library of Economics and Liberty [...]
The Momentum of News
Since the development of the capital asset pricing model (CAPM) in the 1960s, hundreds of anomalies (what John Cochrane famously called a “zoo of new [...]
Why the Size Premium Should Persist
As the chief research officer for Buckingham Strategic Wealth and The BAM Alliance, I’m often asked, after any asset class or factor experiences a period [...]
“The Failure of Factor Investing was Predictable”
In a recent ETF column, Allan Roth listed five investment lessons. While I agreed with much of what he wrote, one claim—factor investing has “failed [...]
Discipline: A Necessary Condition for Successful Investing
A good friend, Sherman Doll, related the following story. Sherman has been a two-line sport kite flier for years. While not a pro, he has [...]
Is Active Alpha Enough to Cover Taxes?
Each time S&P Dow Jones Indices publishes its latest Active Versus Passive Scorecard, the persistent failure of the vast majority of actively managed funds to [...]
How a Multi-factor Portfolio is Constructed Matters
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 [...]