Mirror, mirror, on the wall – which is the fairest of them all? Recent commentary (to include a recent Barron’s article) seems to suggest that value is dead and may never come back. Of course, most of these comments revolve around the price-to-book valuation metric, which, as the Barron’s

The authors discuss a variety of past research papers on time-series momentum but pay particular attention to the Moskowitz, Ooi, and Pedersen (“MOP”) 2012 JFE paper, “Time Series Momentum.” This paper is arguably the first paper in recent memory to crack the top-tier academic journals with

There are now hundreds of factors in what John Cochrane famously called the “zoo of factors.” However, there are only a small number that meet the requirements for investment that my co-author, Andrew Berkin, and I establish in our book, “Your Complete Guide to Factor-Based Investing”:

As evidenced by the image below, interest in momentum research has taken off since the original 1993 Jegadeesh and Titman paper: Source: “Two Centuries of Multi-Asset Momentum (Equities, Bonds, Currencies, Commodities, Sectors and Stocks)”

Yield. Within almost any asset class, investors want to know, what is the “yield” on the investment? For some investors, this is the most important and only screen used when sorting funds. Mutual fund companies have found ways to feed the beast by “juicing” the dividend yield on equity

A growing number of investors are seeking to construct portfolios that simultaneously capture the 1) long-term factor premia ( value, momentum, size etc.) and 2) have attractive ESG profiles. The main research questions of the paper are as follows: Is the relationship between ESG and factor stable

How will systematic (“coordinated”) investing affect prices? What is the risk of increasingly coordinated holdings (crowding)? How does coordinated investing affect market microstructure and optimal execution? Is factor timing possible? What are the issues in the design of factor-based

This article proposes tail risk hedging (TRH) as an alternative model for managing risk in investment portfolios. The standard risk management approach involves a significant allocation to hiqh-quality bonds. However, this approach has historically reduced expected returns over the long term (see

Buy cheap. This is a motto many live by, not only in their daily lives but also in their investment philosophy. Historically, “buying cheap” stocks was a good idea (i.e., the so-called “value” premium). But how might valuation matter when it comes to country allocations? In other words,

What are the research questions? By studying tweets on thirty companies in the Dow Jones Index, the authors ask the following research question: Is it possible to develop a system for the detection and discovery of the popularity of special events on Twitter that may influence the financial markets?

Most of the literature on the momentum factor has focused on behavioral explanations, generally either investor underreaction or overreaction. For example, in his paper “Explanations for the Momentum Premium,” Yale University professor Tobias Moskowitz points out: Underreaction results from

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. In 1997, Mark Carhart, in his study, “On Persistence in Mutual Fund Performance,” was the first to use momentum,

Recently there has been a fairly active discussion within the financial media on the topic of stock buybacks, or share repurchases. This is probably due to the recent tax reform, which has caused many to question where companies will spend their additional profits now that firms (on average) will be

When stock prices reach a new high, investors start asking the question: Are stocks overvalued? To answer this question, investors have developed several alternative equity valuation models. Typically, each of this models compares the stock market’s current price level to a benchmark. Among

Readers often send us great questions related to different ideas on systematic value strategies. The outcome of years of back and forth with readers and internal discussions is several books and hundreds of blog posts on the subject of value investing. So…What have we learned? We’ve learned a

Are there variations in the methods that funds use to manage risk? Do hedge funds practicing risk management outperform other funds during periods of financial crisis? Are there differences in the type of risk management practices in terms of performance? Are there competing explanations that may

High net worth individuals, university endowments, and public pension funds have heavily invested in long/short equity hedge funds. But is the long/short equity asset class benefiting investors? The pitfalls of expensive financial products are well documented in the academic literature; however, the

The literature shows that macroeconomic factors can drive asset returns, however, economists and investment teams operate independently. In this paper, the authors attempt to bring macroeconomic discipline to tactical asset allocation by highlighting macroeconomic “dashboards:” The authors

What are the research questions? This study uses a new classification system for informed vs. uninformed retail trades: short selling stocks without options available indicates more informed trading than short selling stocks with options available. Is there a difference in returns between shorted

Factor investing promises outperformance at low cost. But to add value in a portfolio, it must deliver positive risk-adjusted returns and with low correlation to existing holdings. Historically, pure factor exposures have earned similar risk-adjusted returns to buying and holding plain vanilla asset

Here is a link to our podcast on Behind the Markets Wes and Jeremy chat with Katy Kaminski, Visiting Lecturer in Finance at the MIT Sloan School of Management and co-author of the book, “Trend Following with Managed Futures: The Search for Crisis Alpha.” They discuss trend following and managed

What are the research questions To most readers, it’s no surprise that our ears perk up a little bit anytime someone attempts to broaden the understanding of the value anomaly. The precise reason why high book to market equities have higher expected returns has been a long-standing debate among

What are the research questions? Institutional Investors are increasingly allocating to multi-asset strategies (p.17 ) as they seek to access greater diversity, liquidity, and reduced volatility (survey results from Greenwich Associates, 2015). The main research questions of the paper are as

What are the research questions? This research focuses on the relationship between the frequency of unexpected short selling behavior and abnormal returns surrounding credit watch and rating change announcements in the equity market. It is notable that it employs a unique database that affords the

Similar to some better-known factors like size and value, time-series momentum is a factor which has historically demonstrated above-average excess returns. Time-series momentum, also called trend momentum or trend-following, is measured by a portfolio which is long assets which have had recent

What are the research questions? Despite Peter Bernstein’s suggestion in 2003 that adherence to a fixed and undiversified policy portfolio is dangerous, benchmarks ( the most used of which is the 60/40) are as popular today as they were 15 years ago. The authors study the following research

Smart beta (or factor investing) seems to be the product du jour in ETFs. There are so many different factor products available that just about every fund company seems to offer them…even Vanguard is launching their own suite of factor-based stock funds. Note that nearly all of these products are

What are the research questions? Financial theory asserts a clear link between the risk-free interest rate and the pricing of equity securities, regardless of the time horizon. Therefore, the market’s opinion about the uncertainty of rates should improve models forecasting equity volatility in the

Merger arbitrage, sometimes known as “risk arbitrage,” is an investing strategy in which the investor bets on announced M&A deals. After a merger is announced, shares of the target tend to trade below the offered price (due to deal uncertainty), representing the arbitrage spread; if the deal

Wes asked that I contribute to the ongoing debates regarding the construction of value and momentum portfolios. There are three key research pieces on the topic, all with different viewpoints: Alpha Architect’s take AQR’s take Newfound Research’s Take I encourage everyone to dig into the three

J.P. Morgan researchers, Marko Kolanovic and Zhen Wei, produced an incredibly detailed report on all aspects of momentum (one of our favorite topics!) Here is a link to the report 188 pages of pure effort and information. Here is a summary of what is examined in the research: As the virtually

What are the research questions? According to Datamonitor (2010), the influence of peer-based advice, such as user-generated ratings on Amazon.com or Yelp.com, is increasing while traditional advice (e.g., from Consumer Reports or the Michelin guide) is decreasing. This trend is starting to emerge

It has been well-documented that value stocks have provided higher expected returns than growth stocks. However, there is a great debate about the source of that premium: Is it risk-based or is it related to behavioral errors that create persistent mispricings? There are many papers presenting

What are the research questions? Is the rate of turnover for outside directors unusually high either before fraud is discovered by the firm, or during its commission? Are there regularities in the characteristics of outside directors who depart during the period in which the financial fraud is

It is that time of year again, the American Finance Association Annual Meeting is underway. The conference is in Philadelphia, starting today (January 5) and running through Sunday (January 7). This 3-day conference has 73 sessions, 246 papers and 12 presentations with no papers (general

A few weeks ago, we did a deep dive into the factors versus characteristics debate. One of the reasons we’ve brought up this debate is due to the fact that “factor” loadings (from regressions) are arguably not as helpful as portfolio characteristics. In other words, knowing a portfolio P/E

Conventional wisdom can be defined as ideas that are so accepted that they go unquestioned. Unfortunately, conventional wisdom is often wrong. Two great examples are that millions of people once believed the conventional wisdom that the Earth is flat, and millions also believed that the Earth is the

What are the research questions? Given the prevalence of buybacks as a form of corporate payouts, should they be explicitly included in supply-side models such as the dividend discount model (DDM) used to forecast of stock returns? Does the same superior performance extend to the prediction of

There has been much discussion of the small-cap premium recently. Has its popularity cannibalized its utility? Are large firms preventing a level playing field? Will the small-cap premium exist going forward? This article does not address these concerns directly, but it does identify and analyze

The academic research has generally found valuations, such as the earnings yield (E/P) (or the CAPE 10 earnings yield) and valuation spreads, have predictive value in terms of future returns. The higher the earnings yield, the higher the expected return, and the larger the spread in valuations

Trend-following is something I’ve struggled with for years — always felt like voodoo magic and data-mining. That said, I finally came around to appreciating the practice after a ton of research replication efforts, independent research. At the time I was investigating the topic there really

Does the industry concentration exhibited in short sellers’ holdings convey new material information about the industry? Are the excess returns obtained from industry shorting combined with firm-specific shorting strategies explained by risk? Is the industry shorting signal correlated with

Here is a link to our recent podcast on Behind the Uniform. I’m so humbled and honored to have Wesley Gray on the show today, talking about his experience building Alpha Architect. I found Wes through a Wall Street Journal article that starts with: “Wesley Gray’s value-focused fund of overseas

What are the research questions? What are the general circumstances associated with independent director departures? Is it possible to identify situations whereby the departure is unexpected and not due to retirements, director outside commitments or firings by the firm? Are the unexpected or

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. Initial research on momentum was published by Narasimhan Jegadeesh and Sheridan Titman, authors of the 1993 study,

Shawn McKay, Robert Shapiro, Ric Thomas A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category. What are the research questions? Diversification is often thought of as the only “free lunch” in finance and

Much has been made of Factor Investing, and even Vanguard is launching a suite of actively-managed factor ETFs. But even now, with Vanguard offering factor ETFs, there are many investors that only invest passively into an index fund, such as the SP500 or EAFE index. These investors will cite the

Many investors, investment professionals, and pundits make comments regarding the relationship between stock correlations and opportunities for active stock pickers. For example, here is a recent example from the Financial Times: Correlation crash clears way for stockpickers. The basic (albeit

Factor investing, and the associated intellectual battles, have raged for decades in academic finance journals. However, now that factor investing has gone mainstream via ETFs, the debate has broader interest among the investing public. Some investors question the very existence of factor premiums.

On most mainstream finance websites, a good chunk of the stories discuss the FED and where interest rates are going. Intuitively, this makes sense: The FED is arguably an extremely influential component of U.S. economy. But how do markets respond to the FED? Is the response rational, irrational, or