Quant Mashup - Alpha Architect
Portfolio Rebalancing Research: Momentum and Tolerance Bands [Alpha Architect]
If you are looking for research on stock selection, you’re in luck — the research is everywhere and has arguably been overdone. Get started with Moon Cycles & Stock Market Returns and The Congressional Calendar & Stock Market Returns to get a sense for how esoteric the research has
- 7 years ago, 31 May 2017, 06:30pm -
Academic Research Insight: Factor Investing Over the Long Run [Alpha Architect]
Title: FACTOR BASED INVESTING: THE LONG TERM EVIDENCE Authors: ELROY DIMSON, PAUL MARSH, AND MIKE STAUNTON Publication: THE JOURNAL OF PORTFOLIO MANAGEMENT, 2017, SPECIAL ISSUE (version here) What are the research questions? Is there out-of-sample (OOS) evidence for factor investing? What are the
- 7 years ago, 30 May 2017, 08:33am -
March for the Fallen: Get Fit with Alpha Architect [Alpha Architect]
As a former US Marine, Memorial Day is every day, however, Memorial Day is special because the time is set aside to reflect on those who paid the ultimate sacrifice. Enjoy and stay safe out there! In addition to enjoying the long Memorial Day weekend, we offer a unique opportunity to honor the
- 7 years ago, 26 May 2017, 08:56pm -
The Value Premium: Risk or Mispricing? [Alpha Architect]
One of the great debates in finance is whether the source of the value premium is risk-based or a behavioral anomaly. In our book, “Your Complete Guide to Factor-Based Investing,” my co-author Andrew Berkin and I present the evidence showing that there are good arguments on both sides. Thus,
- 7 years ago, 24 May 2017, 01:55pm -
Academic Research Insight: The Social Media Factor [Alpha Architect]
are to Editor’s Note: The Academic Research Insight will be a weekly short-form research summary on research that is directly related to investing. Elisabetta Basilico (a PhD and a CFA!) will be driving the effort, which will supplement our long-form summaries, in-house research, and general
- 7 years ago, 23 May 2017, 12:37pm -
A Direct Test of the Dividend Catering Hypothesis [Alpha Architect]
Why do CEOs decide to pay dividends? That is an interesting question, and one that academics have been researching for years. Miller and Modigiliani in 1961 show that if one assumes perfect and efficient capital markets, and investors should have no preference as to whether or not a firm pays
- 7 years ago, 18 May 2017, 12:32pm -
Chinese Market Anomaly - The Factor Killer? [Alpha Architect]
The Oracle of Omaha just commented on the Chinese stock market in this year’s Berkshire’s annual meeting: …Markets have a casino characteristic that has a lot of appeal to people, particularly when they see people getting rich around them. And those who haven’t been through cycles before are
- 7 years ago, 12 May 2017, 09:20pm -
Do Trading Costs Destroy Factor Investing? [Alpha Architect]
There are a number of recent studies that propose a more rigorous criteria for evaluating the practical significance of factors published in academic research journals. First, Harvey, Liu, and Zhu (2015) argue that a t-stat of 3 should be replacing the old 2 as a rule for statistical significance.
- 7 years ago, 11 May 2017, 02:51am -
(Fight) the Fed Model [Alpha Architect]
Over the past few years, we’ve been asked questions related to the relationship between stock prices and interest rates. Forms of the question typically look like the following: If interest rates rise, what happens to stock prices? What is the relationship between stocks prices and bond yields?
- 7 years ago, 4 May 2017, 11:59am -
Swedroe Spotlight: Enhancing Momentum Strategies Via Idiosyncratic Momentum [Alpha Architect]
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. The momentum effect is one of the most pervasive asset pricing anomalies documented in the financial literature: Stocks
- 7 years ago, 2 May 2017, 11:42am -
The Capacity of Smart Beta Funds - Larger than Previously Thought? [Alpha Architect]
ETFs and factor investing are on the tip of everyone’s tongue these days. Factor investing is being couched as a “new” thing, despite the fact that institutional investors have been deploying these strategies for years. (See this working paper discussing the effective use of smart beta
- 7 years ago, 28 Apr 2017, 10:03pm -
Tactical Asset Allocation and the US 60/40 Benchmark [Alpha Architect]
Our firm Allocate Smartly provides independent analysis of Tactical Asset Allocation (TAA) strategies. TAA strategies dynamically allocate to broad asset classes like stock indices, bond indices or gold. Unlike a traditional buy & hold portfolio, TAA is able to increase allocation to assets
- 7 years ago, 27 Apr 2017, 12:48pm -
Academic Factor Exposure Versus Fund Factor Exposure [Alpha Architect]
Tomorrow I’ll be sitting with Pat O’Shaughnessy and Ben Johnson to discuss “Straight Talk About Smart Beta.” Here is a link to the big Morningstar event. In preparation for our discussion we were spitballing ideas and Ben brought up the concept of helping investors understand the
- 7 years ago, 26 Apr 2017, 12:42pm -
Great Academic Finance Research Papers at WFA 2017 [Alpha Architect]
There are several big academic finance conferences that attract the best research and the best researchers in one bullpen — the AFA and the WFA meetings. We chatted about the AFA event last January (be sure to check that out). But now it is the WFA’s turn. I attended the WFA a few years back in
- 7 years ago, 25 Apr 2017, 03:07pm -
"Alternative" Facts about Formulaic Value Investing [Alpha Architect]
A new paper, “Facts about Formulaic Value Investing,” is making the rounds and professes to plunge a dagger directly into the heart of systematic value investors. Half of my inbox is filled with questions regarding this paper, since we are considered by some — rightly or wrongly — to be
- 7 years ago, 22 Apr 2017, 09:46pm -
Value and Momentum Investing in Frontier Stock Markets [Alpha Architect]
Value and Momentum investing have been studied across many different markets and asset classes (Asness et al 2013) and have shown to be effective factors. A working paper, “Frontier Stock Markets: Local vs Global Factors” by Douglas W. Blackburn and Nusret Cakici examines Value and Momentum
- 7 years ago, 18 Apr 2017, 01:08pm -
Swedroe Spotlight: Does Market Sentiment Help Explain Momentum? [Alpha Architect]
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 academic to use
- 7 years ago, 17 Apr 2017, 12:21pm -
Introduction to a Basic "Quant" Match Making Service [Alpha Architect]
We were recently asked by Aaron Brask, one of our guest bloggers, why we don’t provide a “job board” on our site. Aaron works for several large family offices and he says it is incredibly difficult to find intellectually honest talent. Aaron also pointed out that we have a unique community of
- 7 years ago, 13 Apr 2017, 11:44am -
How are ETFs Affecting the Stock Market: Is There a Dark Side to ETFs? [Alpha Architect]
The Dark Side of ETFs? Sounds interesting, and in my humble opinion, an image of Darth Vader on page 1 would be a great addition to the paper. The paper, “Is there a dark side to exchange traded funds? An information perspective,” written by Doron Israeli, Charles M. C. Lee, and Suhas A.
- 7 years ago, 12 Apr 2017, 08:36pm -
Looking to Improve your Factor Investing? Examine the Trend of Profits [Alpha Architect]
A few years ago, the profitability “quality” factor was originally proposed by Robert Novy-Marx. Here is a snippet from the abstract of the paper: Profitability, measured by gross profits-to-assets, has roughly the same power as book-to-market predicting the cross-section of average returns.
- 7 years ago, 4 Apr 2017, 07:17pm -
Factor Investing: The Fama French 5-Factor Model on Chinese A-Shares [Alpha Architect]
Each year I teach my “seminar in investments” course at Drexel, which consists of the Masters in Finance students and a handful of geeky MBA students. The first few weeks of the course involve an introduction to various investment frameworks and how to navigate the source academic literature.
- 8 years ago, 31 Mar 2017, 12:31pm -
Rebalance Your Portfolio? You are a Market Timer and Here's What to Consider [Alpha Architect]
In this piece I examine various way in which an investor can think about their active market timing decisions, often labeled with the innocuous term “rebalancing.” Rebalancing a portfolio is the finance version of “eat your vegetables” — the advice is taken as gospel, but very few people
- 8 years ago, 23 Mar 2017, 08:29pm -
Dual Momentum with Stock Selection [Alpha Architect]
Gary Antonacci may not be happy to learn that his "Dual Momentum" label has been pirated by a team of academics (Huang, Zhang, and Zhou)(1)(2) in a new paper that explores the combination of price and fundamental momentum stock-picking strategies. The authors also investigate the common
- 8 years ago, 14 Mar 2017, 05:04pm -
Firm-Specific Information and Momentum Investing [Alpha Architect]
When it comes to momentum investing, everyone is always looking for a better way to implement a momentum-based stock selection strategy (the same goes for a value strategy). We highlight a few methods in our book, Quantitative Momentum, as well as on our blog. We recently came across a paper from
- 8 years ago, 8 Mar 2017, 01:15pm -
Evidence-Based Investing? Take that Alpha and Shove It. [Alpha Architect]
Johnny Paycheck has a great country song centered around the following lyric: Take this job and shove it…I ain’t working here no more… Campell Harvey, in the 2017 AFA Presidential Address, elaborates an analogous comment on the current state of the financial economics field: Take this alpha
- 8 years ago, 3 Mar 2017, 12:44pm -
Active Managers Should Love Passive Investing - It Makes Them Better! [Alpha Architect]
In a recent letter to its investors, Crispin Odey commented as follows:(1) Money managers specializing in picking stocks and bonds are being driven out by mindless passive investing. Odey is a London based hedge fund manager, whose flagship fund lost almost 50% in 2016.(2) Photo courtesy of Wes. All
- 8 years ago, 1 Mar 2017, 09:28am -
Explaining the Low Risk Effect with @LarrySwedroe [Alpha Architect]
As my co-author, Andrew Berkin, and I(1) explain in our new book, “Your Complete Guide to Factor-Based Investing,”(2) one of the big problems for the first formal asset pricing model developed by financial economists, the CAPM, was that it predicts a positive relation between risk and return.
- 8 years ago, 22 Feb 2017, 02:57am -
President's Day Factor Investing Geekout [Alpha Architect]
Our epic piece on factors from a few weeks ago is still ringing in our own ears: Are factors even real? Or just data-mining? The conclusion: who knows. We need more data. And more data we can find. To include a recent master’s thesis on nordic country equities, which looks at Size, value,
- 8 years ago, 20 Feb 2017, 11:31am -
Will ETFs Destroy Factor Investing? Nope. [Alpha Architect]
One of the popular investing truisms is the following (inspired by Bill Sharpe): For somebody to beat the market (win) someone else has to lag the market (lose). This becomes an even more daunting (efficient market) statement when changed to the following: For someone to consistently beat the market
- 8 years ago, 17 Feb 2017, 11:46pm -
Tactical Asset Allocation Insights via the Geeks from @ThinkNewfound [Alpha Architect]
The Alpha Architect mission is to empower investors through education.(1) We can’t accomplish our mission without help. Fortunately, “finance twitter” and an explosion of bloggers are helping us achieve our goal. Awesome! Of course, with so many new blogs hitting the scene, we now face an
- 8 years ago, 16 Feb 2017, 01:56pm -
How to Explain Momentum with Rational Investors - It's complicated [Alpha Architect]
A recent theory paper from researchers at NYU and Rutgers attempts to explain the empirical evidence on stock serial correlation (e.g., short-term reversal, long-term stock reversal, and classic stock momentum). The interesting wrinkle with this paper is the authors don’t need to assume irrational
- 8 years ago, 14 Feb 2017, 10:37am -
Factor Investing is More Art, and Less Science [Alpha Architect]
Albert Einstein is reported to have said the following: The more I learn, the more I realize how much I don’t know. I can relate. Having studied finance for a long time (PhD, professor, books, articles, etc.), I think I now know less about how the stock market works. In fact, I probably should
- 8 years ago, 3 Feb 2017, 11:58am -
Factor Investing Book from @LarrySwedroe [Alpha Architect]
Well, I was midway through a formal book review on Larry and Andrew’s new book, “Your Complete Guide to Factor-Based Investing,” when I noticed that the team over at GestaltU already wrote the review I was going to write — great job and I encourage everyone to read it. larry factor book So
- 8 years ago, 2 Feb 2017, 09:55am -
A Tactical Asset Allocation Researcher You Should Know [Alpha Architect]
I’m a huge fan of hard-core academics that produce incredible research, and yet, very few are familiar with their research. I call these folks, “undiscovered gems.” One might ask why undiscovered gems exist. On one hand, if a researcher produces incredible research, they should be widely
- 8 years ago, 18 Jan 2017, 11:27am -
The January Effect: An Evidence-Based Perspective [Alpha Architect]
January is here again and market commentators are already telling stories about the so-called January Effect. Some articles (examples here and here) are saying the effect is an illusion, while others are claiming the effect can help you make some profits (examples here and here). Before we dig into
- 8 years ago, 11 Jan 2017, 12:56pm -
Go Skew Yourself with Managed Futures [Alpha Architect]
Skewness is a statistical measure of how returns behave in the tails of a probability distribution. Wikipedia has a more robust definition of skewness with some good visuals here. If an investment (e.g., stocks) has negative skewness this means that the extreme returns are more likely to be negative
- 8 years ago, 10 Jan 2017, 08:59pm -
Using Trend-Following Rules to Enhance Factor Performance [Alpha Architect]
After reviewing the 2016 performance of trend-following (-18.15%), its unclear why anyone would mention the word “trend following” in a public forum. But we’ll give it a whirl anyway… The comedian Victor Borge once famously observed, “Santa Claus has the right idea – visit people only
- 8 years ago, 4 Jan 2017, 08:30pm -
Are you Ready to Witness Finance Research on Steroids? [Alpha Architect]
The 2017 American Finance Association conference is kicking off later this week in Chicago. If you haven’t been before — check it out. The conference is the biggest meeting of top-tier academic researchers on the planet. You can review all the research being presented at the following link. Some
- 8 years ago, 4 Jan 2017, 02:52am -
Time Series Momentum, Volatility Scaling, and Crisis Alpha [Alpha Architect]
If you couldn’t tell from our recent monster commodity futures post, we’ve been thinking a lot about futures recently. The futures research area is relatively “fresh,” and a lot more exciting than hacking through equity stock selection research where we already understand the basic answer
- 8 years ago, 22 Dec 2016, 05:04pm -
Interest Rates and Value Investing [Alpha Architect]
There is still no value in bonds today. Many readers just had a knee-jerk reaction and they’ve determined that I fall into one of two categories: A total idiot A total genius But let’s dig a bit deeper into the claim that bonds lack “value,” even with this quarter’s 85 basis point back-up
- 8 years ago, 12 Dec 2016, 04:31pm -
Is the Low Volatility Anomaly driven by Lottery Demand? [Alpha Architect]
A few years ago I wrote a summary on a working paper titled “A Lottery Demand-Based Explanation of the Beta Anomaly.” The paper is still a working paper, and has been updated (unfortunately they took out a neat picture from the original paper!). Here is a link to the new version of the paper,
- 8 years ago, 30 Nov 2016, 05:30pm -
Great Minds Agree to Disagree on the Source of the Value Investing Premium [Alpha Architect]
Active investing sounds so easy. But we all know it is extremely difficult. Ask any deep value investor how they have felt over the past few years (although, they are feeling a lot better recently). Certainly, any credible active investor should be able to answer 2 questions: 1) What is the source
- 8 years ago, 22 Nov 2016, 12:16pm -
In Calm Markets Should We Buy "Cheap" Put Protection? [Alpha Architect]
Time for a little myth busting. Recently, the Motley Fool posted an article that argued the following: when market volatility is low, protective put options are cheap. From the article: Smart investors know that the time to buy most investments is when most investors aren’t paying attention to
- 8 years ago, 18 Nov 2016, 12:02pm -
An Evidence-Based Low Volatility Investing Discussion [Alpha Architect]
Jack and I had the honor of attending the Evidence-Based Investing conference, hosted by the team at Ritholz Wealth Management. Wow. What a great event and a great group of inspiring investors and thinkers. Abe, Meb, John, Mike, and I had the opportunity to chat about systematic investing. Mr.
- 8 years ago, 16 Nov 2016, 06:38pm -
Long-Short Investing Might Shorten Your Investment Lifespan [Alpha Architect]
Over the past several decades, academics have identified numerous variables that seem to predict future expected returns. This has led to a proliferation of so-called “factors” identified in the literature, and created what John Cochrane has labeled the “factor zoo.” Now we we have a zoo of
- 8 years ago, 15 Nov 2016, 02:01am -
Value Investing using Enterprise Multiples - Is the Premium Due to Risk and/or Mispricing? [Alpha Architect]
At Alpha Architect, we are big fans of Value investing (and Momentum). In the past, Wes and I examined which valuation measure had the largest spread between Value and Growth firms. The evidence showed (updated results here) that Enterprise Multiples had the largest spread between Value and Growth
- 8 years ago, 2 Nov 2016, 09:37am -
The Rebalance Bonus for Value and Momentum Porfolios [Alpha Architect]
A sophisticated DFA-focused advisor asked us to conduct some research on the following question: Are there additional portfolio diversification benefits to combining concentrated portfolios of value and momentum stocks relative to combining less concentrated portfolios of value and momentum stocks?
- 8 years ago, 31 Oct 2016, 11:21am -
How to Turn an Engineer into a Quantitative Investor [Alpha Architect]
We receive multiple requests from readers looking to break into the finance industry. Quite often the reader is currently working in a traditional engineering job and looking to make a career switch. The question we often hear is “How does an engineer become a quantitative finance geek?” To
- 8 years ago, 25 Oct 2016, 07:35pm -
Reflexivity and the Feedback Effect in Financial Markets [Alpha Architect]
Eugene Fama’s Efficient Market Hypothesis argues that because stock prices follow a “random walk,” future price behavior cannot be predicted. In his seminal paper, “Random Walks in Stock Market Prices,” he explains the relationship between prices and fundamentals: If the random-walk theory
- 8 years ago, 20 Oct 2016, 11:18pm -
How to Measure Momentum? [Alpha Architect]
Since we’ve released our new book, Quantitative Momentum, we’ve received a handful of basic questions related to momentum–specifically as it relates to stock selection. At this point, the so-called “momentum effect” has occupied academic researchers for several decades. Researchers have
- 8 years ago, 15 Oct 2016, 02:57pm -