Global Factor Performance: January 2023
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
Can Investors Save the Planet? Unlikely.
Can the planet earth be saved by investors? Find out what the research says!
Optimal Trend Following with Transaction Costs
In spite of the widespread popularity of trend-following investing, little is still known about optimal trend-following with transaction costs.
DIY Trend-Following Allocations: January 2023
No exposure to domestic equities. No exposure to international equities. No exposure to REITs. Partial exposure to commodities. No exposure to intermediate-term bonds.
Automation and Asset Pricing Theory
In this article about asset pricing theory, we examine the research on the impact of technological advances that displace human labor in favor of machine capital to asset pricing.
Expected Returns to Green Stocks
The past decade has seen a dramatic growth in sustainable investing—applying environmental, social and governance (ESG) criteria to investment strategies. Investments considered environmentally friendly are often referred to as “green,” while “brown” denotes the opposite. Important questions for investors are: What are the expected returns to green stocks? What does their past performance tell us about their future expected returns? We begin by looking at what economic theory tells us our expectations should be.
Measuring Geopolitical Risk
Although geopolitical risk has traditionally been approached from a qualitative aspect, what makes it a novel risk is the application of innovative techniques to measure it.
The Performance of Multi-Factor Long-Short Portfolios in Various Economic Regimes
To determine if a multi-factor approach has provided diversification benefits in terms of exposure to economic cycle risks, the research team at Counterpoint evaluated returns to multifactor long-short strategies, stocks, and 1-month T-bills in a variety of economic conditions (recession or no recession, high or no high inflation, and stagflation) over the period July 1963-August 2022.
Book Review: The Bogle Effect by Eric Balchunas
This is a review of Eric Balchunas's book "The Bogle Effect: How John Bogle and Vanguard Turned Wall Street Inside Out and Saved Investors Trillions."
Bigger is Not Always Better in Asset Management
Pastor, Stambaugh, and Taylor (2015) and Zhu (2018) provide significant evidence of decreasing returns to scale (DRS) at both the fund and industry levels. The authors examine the robustness of their inferences after Adams, Hayunga, and Mansi (2021) critique the above two studies.
Mutual Fund to ETF Conversions: To Proxy or Not to Proxy, that is the question
ETF conversions are accelerating and we are seeing more and more mutual funds converting into ETFs. The reasons for mutual fund to ETF conversions are obvious: tax efficiency, transparency, and lower operating costs. But how does this work? What are the pro/cons? This post provides a glimpse behind the curtain and a practical guide for any asset manager considering a mutual fund conversion. Below we outline the laws behind a mutual fund conversion, options for mutual fund conversions, and the nitty-gritty behind how to optimize a mutual fund conversion.
Machine Learning and The Cross-Section of Emerging Market Stock Returns
The paper documents that return forecasts from machine learning methods lead to superior out-of-sample returns in emerging markets.
Global Factor Performance: December 2022
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
Volatility scaling is useful for factor timing
This paper investigates the effects of volatility scaling on factor portfolio performance and factor timing.
The “Resurrected” Size Effect and Monetary Policy
Given that tightening monetary policy increases economic risks, Simpson and Grossman provided compelling evidence of a risk explanation for the size factor. For those investors who engage in tactical asset allocation strategies (market timing), their evidence suggests that it might be possible to exploit the information. Before jumping to that conclusion, I would caution that because markets are forward-looking, they should anticipate periods of Fed tightening and the heightened risks of small stocks.
Investing in Deflation, Inflation, and Stagflation Regimes
In this article, we examine the research on investing during inflationary regimes such as deflation, inflation, and stagflation. Factors perform relatively well in all regimes on a real basis.
Trend Following and Relative Sentiment: Complementary Factors
Since it is likely that both the Relative Sentiment and Trend Following strategies will underperform at some points in the future, “a 50-50 combination of TF and RS might reduce the emotional volatility an investor may experience from holding only the underperforming strategy.”
DIY Trend-Following Allocations: December 2022
No exposure to domestic equities. Partial exposure to international equities. No exposure to REITs. Full exposure to commodities. No exposure to intermediate-term bonds.
Want to Get on a Corporate Board? Who You Know Matters
Here's what the research says about how to get on a board of directors.
Does Momentum work in Option Markets?
This paper explores the question of option momentum by examining what the research says about the performance of option investments across different stocks.