Global Factor Performance: March 2023
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
Can We Improve Momentum Factor Investing via Salience Theory?
The contribution of salience theory to the theory of asset pricing turns out to be quite a profitable insight for momentum strategies.
Intangibles and the Value Factor
This figure shows the long, short and long-short leg performance of the intangible value factor in comparison to the traditional value factor. The performance is shown for each of the four regions: U.S., Europe, Japan and Asia Pacific between June 1983 and December 2021. The monthly returns are ex-post volatility scaled to 5% p.m
DIY Trend-Following Allocations: March 2023
No exposure to domestic equities. Partial exposure to international equities. No exposure to REITs. No exposure to commodities. No exposure to intermediate-term bonds.
Does International Diversification Work?
In this article, the authors examine the research on the benefits of international diversification. Some argue that because equity markets generally crash simultaneously, there are no benefits to having equity diversification. The evidence from this paper rejects this hypothesis.
Inside the Minds of Expected Stock Returns
Non-traditional investor preferences play an important role in explaining the cross-section of expected stock returns.
How Pervasive is Corporate Fraud?
In this article, we examine the research on the pervasiveness of corporate fraud (misconduct or alleged fraud), which is one of the (less emphasized) costs of public ownership.
It’s Always Darkest Just Before Dawn
Wide divergences between the valuations of cheap stocks relative to expensive stocks have preceded significant outperformance for value over the subsequent decade, as shown in this figure.
Do Gender Pay-Gap Disclosures Make a Difference?
The verdict is still out on the impact of legislation regarding firm disclosure rules on the gender pay gap (GPG). Results from recently published research are mixed.
Global Factor Performance: February 2023
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
Factor Returns and the Information in Valuation Spreads
Given that valuations provide information on equity returns, it should not be surprising to learn that valuation spreads provide information on future factor premiums.
Do Investors Pay Less Attention to Women (Fund Managers)? YES
This article examines the research on gender bias and fund management. Specifically, we will focus on the gender-based attention bias.
Should investors be indifferent to dividend impact on stock returns?
In their 1961 paper, “Dividend Policy, Growth, and the Valuation of Shares,” Merton Miller and Franco Modigliani famously established that dividend policy should be irrelevant to stock returns. As they explained it, at least before frictions like trading costs and taxes, investors should be indifferent to $1 in the form of a dividend (causing the stock price to drop by $1) and $1 received by selling shares. This must be true, unless you believe that $1 isn’t worth $1. This theorem has not been challenged since, at least in the academic community.
DIY Trend-Following Allocations: February 2023
Partial exposure to domestic equities. Partial exposure to international equities. No exposure to REITs. Partial exposure to commodities. No exposure to intermediate-term bonds.
Political Beta
This example of research on political beta is an example of applying portfolio theory to problems associated with global politics.
Improving ESG Practices Boosts Valuations
This chart on creating shareholder value through ESG engagement is useful when evaluating if ESG practices boost valuations.
Institutional Investors and Corporate Carbon Footprint
This table of emissions and carbon intensity is relevant to the question of institutional investor influence over the carbon footprint.
Mitigating Risks with Factor Strategies
The following exhibit, which is useful to the subject of mitigating risks with factor strategies, provides the total return of the four benchmark portfolios and the five anomaly portfolios.
Expected Returns for Private Equity Will Probably Suck
The illiquid nature of the asset class makes the demystifying of private equity returns difficult to achieve under any circumstances, but the framework presented in this article should move the reader closer to the goal.
The Value Factor and Deleveraging
How do you separate the signal from the noise? To have confidence that a factor premium, or strategy, isn’t just the result of data mining - a lucky/random outcome - we recommended that you should require evidence that the premium has been not only persistent over long periods of time and across economic regimes, but also pervasive across sectors, countries, geographic regions and even asset classes; robust to various definitions (for example, there has been both a value and a momentum premium using many different metrics); survives transactions costs; and has intuitive risk- or behavioral-based explanations for the premium to persist.