Quant Mashup - Larry Swedroe
Stock Volatility Moves Treasurys [Larry Swedroe]
Understanding the volatility of Treasury bond returns, as well as the volatility of both the level and slope of the Treasury term-structure, are fundamental issues in finance. What’s more, they have important implications for investors and portfolio design. Researchers have offered both theory and
- 8 years ago, 21 Oct 2015, 06:01am -
Keep Skewness In Perspective [Larry Swedroe]
Diego Amaya, Peter Christoffersen, Kris Jacobs and Aurelio Vasquez, authors of the new paper, “Does Realized Skewness Predict the Cross-Section of Equity Returns?”, examined higher moments of volatility, skewness and kurtosis to determine if they have provided incremental explanatory power in
- 8 years ago, 14 Oct 2015, 02:59am -
More Factors Don’t Always Help [Larry Swedroe]
Professors Eugene Fama and Kenneth French have a new paper, “Incremental Variables and the Investment Opportunity Set,” that provides some important insights for investors considering funds designed to supply exposure to multiple factors, or styles, of investing. In their study, they note:
- 8 years ago, 12 Oct 2015, 11:23am -
The Cheap Volatility Illusion [Larry Swedroe]
As I write this on Aug. 10, despite all the economic problems facing investors (such as Greece, the slowing Chinese economy, a bear market in Chinese stocks, the collapse in commodity prices and Puerto Rico’s default), the VIX index, a measure of the market’s expectation of 30-day volatility,
- 8 years ago, 24 Aug 2015, 09:40pm -
Parallels Of Betting & Investing [Larry Swedroe]
Two of the most-well-known factors that help explain stock returns are the value effect (where equities with lower prices relative to metrics—such as book value, earnings, cash flow, sales and dividends—tend to outperform the equities with higher prices relative to those metrics), and the
- 8 years ago, 21 Aug 2015, 07:57pm -
Battle Of New Factor Models [Larry Swedroe]
In their groundbreaking paper, “Digesting Anomalies: An Investment Approach,” Kewei Hou, Chen Xue and Lu Zhang proposed a new four-factor asset pricing model that goes a long way toward explaining many of the anomalies neither the Fama-French three-factor nor subsequent four-factor models could
- 8 years ago, 7 Aug 2015, 09:46am -
When Bonds Act Like Stocks [Larry Swedroe]
Research into the determinants of fixed-income returns have found that a number of stock and bond market risk factors can be shown to demonstrate explanatory power beyond the standard term-structure variables. Ivelina Pavlova, Ann Marie Hibbert, Joel Barber and Krishnan Dandapani—authors of the
- 8 years ago, 5 Aug 2015, 11:44am -
The Carry Trade Defies Theory [Larry Swedroe]
The success of the carry trade strategy has led to its widespread proliferation, despite the fact that it contradicts economic theory. In short, this strategy involves borrowing (going short) a currency with a relatively low interest rate and using the proceeds to purchase (going long) a currency
- 8 years ago, 3 Aug 2015, 03:31am -
Liquidity Premium Diminishing [Larry Swedroe]
Liquidity can be described as the ability to trade a large number of investments quickly, at low costs and when you want to. Because it is a priced risk, liquidity and its associated price effects are an important aspect of financial markets. In illiquid markets, such as the private equity market,
- 8 years ago, 28 Jul 2015, 09:37am -
High Frequency Trading & Price Efficiency [Larry Swedroe]
The effect of high-frequency trading on market quality has generated strong interest among academics, investors and regulators alike. To further explore the impact high-frequency trading can have on the markets, Jennifer Conrad, Sunil Wahal and Jin Xiang—authors of the study “High Frequency
- 8 years ago, 22 Jun 2015, 10:44am -
High Growth Countries No Sure Thing [Larry Swedroe]
Conventional wisdom can be defined as ideas so ingrained in our belief system that they are accepted without challenge. Unfortunately, much of the conventional wisdom about investing is incorrect. For example, the conventional wisdom that investors seeking high returns should invest in countries
- 8 years ago, 17 Jun 2015, 05:04am -
Momentum Across Time & Asset Classes [Larry Swedroe]
The academic study of price momentum has intensified considerably since 1993, the year Narasimhan Jegadeesh and Sheridan Titman's paper, "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," appeared in The Journal of Finance. The authors found that
- 8 years ago, 12 Jun 2015, 06:51am -
Exploring The Profitability Factor [Larry Swedroe]
A June 2012 study authored by University of Rochester professor Robert Novy-Marx, “The Other Side of Value: The Gross Profitability Premium,” not only provided investors with new insights into the cross section of stocks returns, but also led to the development of new factor models that
- 8 years ago, 5 Jun 2015, 12:38pm -
Investors Pay Premiums For Bad Bets [Larry Swedroe]
The first formal asset pricing model—the capital asset pricing model—was built on certain assumptions, including that investors are risk-averse; will maximize the expected utility of absolute wealth; and care only about the mean and variance of return. However, academic research has found that
- 8 years ago, 1 Jun 2015, 06:49am -
Risk-Managed Momentum Outperforms [Larry Swedroe]
Momentum has been found to be a persistent and pervasive factor in the returns not only of stocks, but of other asset classes (including bonds, commodities and currencies). Compared with the market, value and size risk factors, momentum in equities has earned both the highest premium and the highest
- 8 years ago, 27 May 2015, 01:21pm -
A Magical Metric That Isn’t [Larry Swedroe]
I was recently asked to comment on an article that appears in the April 2015 issue of the American Association of Individual Investors Journal. The article is based on the paper “Mutual Fund’s R2 as Predictor of Performance,” which was published in the March 2013 issue of The Review of
- 8 years ago, 20 May 2015, 04:23am -
Anomalies Can Mean Alpha [Larry Swedroe]
Since the development of the capital asset pricing model (CAPM) about 50 years ago, academic researchers have documented several hundred “anomalies” that generate a significant positive alpha. There are now so many that professor John Cochrane referred to them as the “factor zoo.” There are
- 8 years ago, 13 May 2015, 03:37am -
Credit Risk Isn't Worth It [Larry Swedroe]
From 1926 through 2014, the default premium (the annual return on long-term, investment-grade corporate bonds minus the annual return on long-term Treasurys) has been just 0.22 percent. Such a small premium has led many observers, including me, to conclude that investors willing to accept higher
- 8 years ago, 8 May 2015, 03:22am -
More Value Facts And Fiction [Larry Swedroe]
Earlier this week, we began discussing some of the more pervasive and enduring facts and fictions surrounding the value premium. But it's important to understand that the value premium-a phenomenon in which securities that sell at low prices relative to fundamental metrics outperform on average
- 8 years ago, 6 May 2015, 06:20am -
Carry & Trend Effects Up Close [Larry Swedroe]
Two of the most well-known phenomena in investing are the carry effect and the trend effect. Trend is related to momentum. While carry is typically used in the context of currency markets (currencies with higher yields tend to produce higher returns than currencies with lower yields), it can also be
- 9 years ago, 24 Apr 2015, 01:21am -