Momentum Everywhere, Including Emerging Markets
Atilgan et al. contribute to the momentum literature with “Momentum and Downside Risk in Emerging Markets.”
DIY Trend-Following Allocations: October 2022
No exposure to domestic equities. No exposure to international equities. No exposure to REITs. Partial exposure to commodities. No exposure to intermediate-term bonds.
Does Gender Affect Reactions to Market Sentiment Shifts?
Does gender matter in institutional investing?
The Relationship Between the Demand for Leverage and Management Fees
This article discusses what academic research says about the relationship between the demand for leverage and management fees.
Portfolio Architect as a Tool for Growing Your Business: Today at 12pm EST.
Scott will demonstrate how he uses our Portfolio Architect tool to simplify the investment model discussion with clients and how the tool can save you time creating marketing material.
If you are a current user of our tool, we highly recommend you attend this discussion.
Gender Pay Gap Transparency
In this article, we examine what the research says about gender pay gap transparency. We look at the research questions and academic insights with an eye toward why it matters.
High-Frequency Consumer Spending Data and the Cross-Section of Stock Returns
Consumer demand drives the cash flows of consumer-oriented companies. Thus, they should serve as a reliable source of information to predict future fundamentals above and beyond the information contained in financial statements and readily available market data.
Should Levered and Inverse ETFs Even Exist?
In this article, we explore Levered and Inverse ETPs (exchange-traded products); their purpose, the circumstances in which they tend to succeed and fail, and the research questions associated with them.
Has the Stock Market Systematically Changed?
This time is almost always different, it seems, but the data suggest that things are typically always the same: chaotic and volatile. Stock market investors should be prepared for large short-term moves in stocks and they should be skeptical of narratives suggesting a causal relationship between environmental variables and future volatility.
Momentum Investing: How Did Momentum Investing Perform After the Previous Two Valuation Peaks?
How did Momentum investing perform after the previous two valuation peaks?
This article answers this question.
Key finding: Momentum investing also performed well following episodes when value stocks were cheap. Of course, momentum portfolios did not perform nearly as well as value portfolios, but they did still beat the generic market.
We dig into the details below.
The Short-Duration Equity Premium
We examine the short-duration premium using pre-scheduled economic, monetary policy, and earnings announcements. We provide high-frequency evidence that duration premia associated with revisions of economic growth and interest rate expectations are consistent with asset pricing models but cannot explain the short-duration premium. Instead, we show that the trading activity of sentiment-driven investors raises prices of long-duration stocks, which lowers their expected returns, and results in the short-duration premium. Long-duration stocks have the lowest institutional ownership, exhibit the largest forecast errors at earnings announcements, and show the highest mispricing scores.
Is Momentum a Separate Factor?
We find that factor momentum concentrates in factors that explain more of the cross section of returns and that it is not incidental to individual stock momentum: momentum-neutral factors display more momentum.
Brand Values and Long-Term Stock Returns
An equal-weighted portfolio of Best Brands (BBs) in the U.S. earns an excess return of 25 to 35 bps per month during the period 2000-2020. This result is remarkably robust across various factor models and therefore is not driven by exposure to common (risk) factors. The excess returns of the BB portfolio are not due to firm characteristics, industry composition, or small-cap stocks. We provide evidence suggesting that expensing investments in brands (instead of capitalizing them) and the tendency to underestimate the effect of brand name on generating future earnings are two mechanisms contributing to the excess returns.
Global Factor Performance: September 2022
Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads
ESG Ratings how do they Compare Across Data Providers?
Investments aligned with environmental, social, and governance (ESG) principles are rapidly growing globally. In the exchange traded fund (ETF) industry, this gives rise to the power of ESG rating firms that have the influence to direct capital flows into ETFs tracking the indexes. This article examines the issues of substantial ESG rating divergence across rating firms, the impact on investors’ choices, and the influence on the ETF industry. The divergence appears to be the greatest in social and governance components, and is often qualitative in nature. The author found that certain economic sectors are more prone to ESG rating divergence than others. She presents a case study about two ESG ETFs that are viewed quite differently under various rating lenses, and offers suggestions to investors, advisors, and analysts on how to research ESG ETFs, given the major rating divergence. The article concludes with ways the ETF industry could improve its practices collectively to better serve investors with clarity and to sustain the growth of ESG impact investments.
DIY Trend-Following Allocations: September 2022
Current Exposures:
- No exposure to domestic equities.
- No exposure to international equities.
- No exposure to REITs.
- Full exposure to commodities.
- No exposure to intermediate-term bonds.
How You Sort Matters in Sorting Factor Portfolios
Non-standard errors capture uncertainty due to differences in research design choices. We establish substantial variation in the design choices made by researchers when constructing asset pricing factors. By purposely data mining over two thousand different versions of each factor, we find that Sharpe ratios exhibit substantial variation within a factor due to different construction choices, which results in sizable non-standard errors and allows for p-hacking. We provide simple suggestions that reduce the average non-standard error by 70%. Our study has important implications for model selection exercises.
March for the Fallen 2022: Detailed Logistics Outline and What to Expect
We are about a month away from March for the Fallen (#MFTF).
Do Equity Markets Care About Income Inequality?
Do equity markets care about income inequality? We address this question by examining equity markets’ reaction and investors’ portfolio rebalancing in response to the first-time disclosure of the ratio of CEO to median worker pay by U.S. public companies in 2018. We find that firms’ disclosing higher pay ratios experience significantly lower abnormal announcement returns. Additional evidence suggests that equity markets “dislike” high pay dispersion rather than high CEO pay or low worker pay. Firms whose shareholders are more inequality-averse experience a more pronounced negative market response to high pay ratios compared to firms with less inequality-averse shareholders. Finally, we find that during 2018 more inequality-averse investors rebalance their portfolios away from high pay ratio stocks relative to other investors. Overall, our results suggest that equity markets are concerned about high within-firm pay dispersion, and investors’ attitude towards income inequality is a channel through which high pay ratios negatively affect firm value.
Can You Keep Your Track Record After an ETF Conversion?
Here is the bottom line: converting into the ETF structure can bring a lot of benefits to the table, but porting your official track record over to an ETF can be challenging.
However, even if the facts and circumstances of your situation suggest that porting your official track record into an ETF is impossible, all is not lost. Retail consumers, institutional investors, platform providers, gate-keepers, and so forth, will likely be aware of your previous performance and reputation as an asset manager/advisor and they can often read between the lines. For example, if an advisor has been running the "ACME US Dividend Strategy" for 20 years, and this same advisor launches the "ACME US Dividend ETF" with the same investment process and investment objective, it doesn't take a rocket surgeon (or a brain scientist) to figure out that the ETF is probably a more tax-efficient version of the old strategy.