We've been suffering through the deepest and longest drawdown in values history. Looking for a scapegoat to explain the lackluster performance many have pointed to low interest rates as the root cause of the underperformance. The question is have interest rates impacted value in the past?
Despite the fact that a company’s internally generated intangible investments create future value, under current U.S. generally accepted accounting principles, internally developed intangibles are not included in reported assets. While research and development is an important intangible asset, so too is branding. Omission of an increasingly important class of assets reduces the usefulness and relevance of financial statement analysis that uses book value.
Using data on 65,000 stocks from 23 countries, they evaluated the performance of the Fama-French factors, examining the factor premia in global markets to verify their robustness across different company size categories and geographical regions. Their data sample covered the period 1987-2019.
One of the big problems for the first formal asset pricing model developed by financial economists, the CAPM, was that it predicts a positive relationship between risk and return. However, empirical studies have found the actual relationship to be basically flat, or even negative. Over the last 50 years, the most “defensive” (low-volatility or low-beta, low-risk) stocks have delivered both higher returns and higher risk-adjusted returns than the most “aggressive” (high-volatility, high-risk) stocks.
Liquidity—the ability to buy and sell significant quantities of a given asset quickly, at low cost, and without a major price concession—is valuable to investors. [...]
Hendrik Bessembinder contributes to the literature on the returns to public equity investment diversification benefits with his study “Wealth Creation in the US Public Stock [...]
Sustainable investing has grown substantially in recent years, demonstrating that investor demand can be driven by nonfinancial issues such as environmental (E), social (S), and [...]
Because of the complexity inherent to ETF trading in the secondary market, there are frequent misunderstandings about the relationship between the liquidity of the underlying [...]
Recent research, including the 2020 studies “Explaining the Recent Failure of Value Investing” and “Intangible Capital and the Value Factor: Has Your Value Definition Just [...]
My March 23, 2021, article for Alpha Architect addressed the issue that in recent years the field of empirical finance has faced challenges from papers arguing that [...]
A large body of evidence, including the studies “Is There Momentum in Factor Premia? Evidence from International Equity Markets,” Factor Momentum Everywhere (Summary)” and “Factor [...]
From 2017 through March 2020, the relative performance of value stocks in the U.S. was so poor, experiencing its largest drawdown in history, that many [...]
Academic research has found that factor premiums are both time-varying and dependent on the economic cycle. For example, Arnav Sheth, and Tee Lim, authors of [...]
Since the development of the capital asset pricing model (CAPM) about 50 years ago, academic researchers have documented hundreds of “anomalies” that generate significant positive [...]
A firm’s stock price should reflect the value of both its tangible and intangible capital. While tangible capital has been widely studied, intangible capital has [...]
Recent research, including the 2020 studies “Explaining the Recent Failure of Value Investing” and “Intangible Capital and the Value Factor: Has Your Value Definition Just [...]
While environmental, social, and governance (ESG) investing continues to gain in popularity, economic theory suggests the share prices of “sin” businesses (typically those involved in [...]
My August 17, 2020, article for Advisor Perspectives, “Factor-Based Investing Beats Active Management for Bonds,” provided the evidence from a series of academic papers on [...]
Prospect theory was developed by Daniel Kahneman and Amos Tversky in 1979. The theory starts with the concept of loss aversion—the observation that people react [...]
Two of the more interesting puzzles in finance are the high beta anomaly (high beta stocks have lower returns) and the IVOL anomaly (stocks with [...]
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