Another Angle On Factor Diversification


Last week, we examined the data (from my new book, “Your Complete Guide to Factor-Based Investing,” which I co-authored with Andrew Berkin) on the odds that the premiums associated with some common investment factors would produce a negative return over various horizons. We then examined how constructing a diversified factor portfolio might impact those odds …Read More.

Election Revives Old Myths


The results of the U.S. presidential election not only surprised almost all the gurus who were saying that a Hillary Clinton victory was a sure thing, but also those forecasting that, if by some miracle Donald Trump won, a stock market crash was bound to occur. Prior to the election, I had received many inquiries …Read More.

The Perils Of Bargain Hunting


As I have been discussing in a series of articles (which you can find here, here and here), we now have a substantial body of evidence demonstrating that individual investors possess a preference for low-priced equities. This is anomalous behavior, because the level of a company’s stock price is arbitrary—firms can manipulate it by adjusting …Read More.

How Risk and Uncertainty Affect Stock Returns

Asset pricing models imply that equity portfolios’ time-varying exposure to the market risk and uncertainty factors carries with it positive risk premiums. Turan Bali and Hao Zhou contribute to the body of literature on this topic through the study “Risk, Uncertainty, and Expected Returns,” which appeared in the June 2016 issue of the Journal of Financial and …Read More.

Here’s A Better Measure Of Value


Eugene Fama and Kenneth French’s seminal 1992 paper, “The Cross-Section of Expected Stock Returns,” resulted in the development of the Fama-French three-factor model. This model added the size and value factors to the market beta factor. One of the benefits of adding the value factor (the tendency for relatively cheap assets to outperform relatively expensive …Read More.

The Volatility of Active Management

S&P Dow Jones Indices has long provided a great service to investors with its semi-annual S&P Indices Versus Active (SPIVA) scorecards. The evidence offered in these reports has shown time and again that, regardless of the asset class, the vast majority of active managers persistently fail to outperform their benchmarks, and that there is little to …Read More.

Diversification For The Long Term


The table below, taken from the newly released book I co-authored with Andrew Berkin, “Your Complete Guide to Factor-Based Investing,” shows the annual premium and Sharpe ratio for the equity factors of market beta, size, value, momentum, profitability and quality. It also shows the odds that each premium will produce a negative return over various …Read More.

New Book Shines Light On Momentum


Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. This is a big problem for the efficient markets hypothesis, as there’s no coherent risk-based explanation for momentum’s performance. Not only has there …Read More.

The Guide to Happy Giving

The giving season is underway, with the holidays and year-end bearing down on us. So how can we transform one of the more stressful, and sometimes guilt-ridden, elements of the season into something more life-giving? Whether you’re giving to a family member, a friend or a cause, please consider the following four directives as a …Read More.

An Interesting Test of Market Efficiency

Japan’s Government Pension Investment Fund (GPIF) is the world’s biggest state investor, trumping all other managed government retirement and sovereign wealth funds. Prime Minister Shinzo Abe’s drive to spur the Japanese economy out of its two-decade-and-growing economic slump, known as Abenomics, has pushed the GPIF to plow more money into risky investments, aiming both to …Read More.

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