What are the research questions? Are crowdsourced earnings forecasts from a source such as Estimize, useful in the capital markets by capturing new information about future earnings? Does a site such as Estimize add incremental accuracy when combined with the conventional, sell-side earnings

I will be talking on the Factor Investing panel at the upcoming Evidence-Based Investing Conference in Dana Point, CA next Sunday –Tuesday. I am excited for the opportunity to chat, and figured I would highlight a few thoughts we have on the topic going into the event. First, what is “evidence

Title: FURTHER EVIDENCE ON THE STRATEGIC TIMING OF EARNINGS NEWS: JOINT ANALYSIS OF WEEKDAYS AND TIMES OF DAY Authors: RONI MICHAEY, AMIR RUBIN, ALEXANDER VEDRASHKO Publication: JOURNAL OF ACCOUNTING AND ECONOMICS, 2016 (version here) What are the research questions? Do managers act to strategically

The Holy Grail for mutual fund investors is the ability to identify in advance, which of the active mutual funds (or ETFs nowadays) will outperform in the future. The evidence suggests this task is almost impossible. To date, the overwhelming body of academic research has demonstrated that past

Purely passive investing is theoretically plausible, but practically impossible. That said, the practical implementations can often be “good enough.” As a theoretical index investor, you deploy capital, take a long snooze, and wake up some day to consume your portfolio. Unfortunately, the world

Title: A WEALTH MANAGEMENT PERSPECTIVE ON FACTOR PREMIA AND THE VALUE OF DOWNSIDE PROTECTION Authors: LOUIS SCOTT AND STEFANO CAVAGLIA Publication: THE JOURNAL OF PORTFOLIO MANAGEMENT, SPRING 2017 (version here) What are the research questions? The article links two current hot topics: goal based

Title: PORTFOLIO CONCENTRATION AND PERFORMANCE OF INSTITUTIONAL INVESTORS WORLDWIDE Authors: NICOLE CHOI, MARK FEDEINA, HILLA SKIBA, TATYANA SOKOLYK Publication: JOURNAL OF FINANCIAL ECONOMICS, 2017 (version here) What are the research questions? Portfolios in international markets tend to be more

In the past we have discussed that some investors demand dividends. (Here is a nice post by Larry Swedroe on the topic and there are more holistic measures, such as shareholder yield, which are better predictors of future returns). A few posts we have on the topic highlight that CEOs cater to

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

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

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

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,

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

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

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

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.

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?

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

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

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

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

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

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

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

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

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

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.

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.

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.

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

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

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

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

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

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.

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,

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

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

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

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

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

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

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

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

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

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

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

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

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,

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