Optimal Trend Following Rules in Two-State Regime-Switching Models
We examine trend-following rules when the stock returns follow a two-state process that randomly switches between bull and bear markets.
Active Managers are Subject to the Same Biases as Individual Investors
Are active managers victims of the same bias as individual investors? That is the question we’ll explore in this paper.
Is there a theoretical foundation behind industry and factor momentum
Industry and factor momentum should be viewed as recent developments in the wider momentum story, although these aggregated measures of momentum lack any theoretical foundation.
Of Bronze and Blue
A Veteran's Day Blog. This summer, The Basic School in Quantico, Virginia unveiled a memorial, honoring lieutenants that were killed in Operation Iraqi Freedom and Operation Enduring Freedom.
The Role of the Secular Decline in Interest Rates in Asset Pricing Anomalies
Jules van Binsbergen, Liang Ma and Michael Schwert, authors of the September 2022 study “The Factor Multiverse: The Role of Interest Rates in Factor Discovery,” posed an interesting question: Are the findings of at least some of the reported anomalies the direct result of the 40-year secular decline in global interest rates and thus not really anomalies?
Global Factor Performance: November 2022
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
The Cross Section of Stock Returns Pre-CRSP data: Value and Momentum are confirmed as robust anomalies
We study the cross-section of stock returns using a novel constructed database of U.S. stocks covering 61 years of independent data.
Why Advisors (and Family Offices) Should Consider Creating their Own ETFs
Independent RIA firms seek to do what is "right" for the client, which often boils down to minimizing fees and taxes and increasing transparency/education (i.e., ETFs). But the "right" solution for an advisor's clients might not be available 'off-the-shelf' in the ETF market, or the advisor can't use ETFs because they are stuck "managing around" legacy portfolios and tax problems.
What's the solution? Allow advisors to create their own ETFs, which can be customized to deliver the specific investment program the advisor desires and allows an advisor to offer unique solutions for legacy tax issues tied to low-basis securities.
Market Risk and Speculative Factors
Soroush Ghazi and Mark Schneider authors of the August 2022 study “Market Risk and Speculation Factors” decomposed the excess market return (the equity risk premium) into speculative (in the simple sense that it is negative, reflecting a premium investors pay to hold assets that are more subject to speculative demand) and non-speculative, or risk (in the simple sense that it is positive, a necessary characteristic for a factor to reflect compensation for risk) components.
DIY Trend-Following Allocations: November 2022
No exposure to domestic equities. No exposure to international equities. No exposure to REITs. Full exposure to commodities. No exposure to intermediate-term bonds.
Momentum Factor Investing: 30 years of Out of Sample Data
In this article, the author examines the research published over the last 30 years on momentum and its theoretical credibility. One of the original momentum articles was published by Jegadeesh and Titman in 1993, and is considered the seminal work on the topic. The research review contained in this publication begins with the 1993 work and confines itself to only the highest quality journals among the plethora of work that has been published on momentum.
Mind the Momentum Gap to Improve Performance
This article discusses the academic research about the Momentum Gap and the role that its predictive potential may have in reducing momentum crashes, hence possibly improving performance.
Bias in Beta and Implications for Empirical Asset Pricing
In this article, the author examines several important questions related to asynchronous trading, or the variation in trading frequency that occurs when trading stocks or other assets.
Are ESG strategies more effective for societal impact or performance?
In this article, we examine the research addressing the question of to what extent, if any, ESG strategies improve investment performance on a risk-adjusted basis, or if they are more effectively used for the societal impact they potentially have.
The Effect of Indexing on Price Discovery and Limits to Arbitrage
We discuss the academic research about the causal effect of indexing on arbitrage conditions and price discovery.
Is Democracy better for the stock market?
We examine the question of whether or not democracy leads to better possible outcomes for the stock market.
Lottery Demand and the Asset Growth Anomaly
It is well documented in the literature that over the long term, low-investment firms have outperformed high-investment firms—with the negative relation between asset growth (AG) and future stock returns particularly featured by the overvaluation of high AG stocks.
What is the Story Behind Trend Following?
Trend Following is simply buying an asset when it is going up, *and,* you sell that asset when it is going down.
Pulling the curtain back: what do millionaires invest in?
In this article, we examine the academic research about what millionaires invest in.
Global Factor Performance: October 2022
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads