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.
Larry Swedroe discusses his new book, “Your Complete Guide To Factor-Based Investing,” while taking on smart beta, the investment factor “zoo” and how to think differently about diversification in a recent interview with ETF.com’s Drew Voros. Find it on ETF.com By clicking on any of the links above, you acknowledge that they are solely for …Read More.
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.
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.
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.
CAPM was the first formal asset pricing model. Market beta was its sole factor. With the 1992 publication of their paper, “The Cross-Section of Expected Stock Returns,” Eugene Fama and Kenneth French introduced a new-and-improved three-factor model, adding size and value to market beta as factors that not only provided premiums, but helped further explain …Read More.
Larry Swedroe discusses his new book, “Your Complete Guide To Factor-Based Investing,” as well as the theory behind factor strategies and how investors can achieve their risk and return objectives through them, in a recent Q&A. Find it on MutualFunds.com By clicking on any of the links above, you acknowledge that they are solely for …Read More.
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.
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.
As the director of research for The BAM Alliance, I’ve been getting lots of calls recently from investors questioning their international equity investments. This hasn’t been a surprise, as any time an asset class does poorly, a significant number of investors will question why they own that asset. One particular inquiry I received addressed the …Read More.
In the last few weeks, I’ve unpacked studies addressing both the nominal price illusion and the nominal price premium. So today I’ll answer a related question: Do nominal stock prices really matter? Because the level of a company’s stock price is arbitrary—it can be manipulated, for example, by firms via adjustments in the number of …Read More.
We’ll know soon enough who America chooses as its next president, but the market has already voted. Who does the stock market “want” to win? Hillary Clinton. This isn’t a partisan statement, but simply a statement of fact. There may be several indicators to which we could point, but the glaring one is this: When …Read More.
As I wrote about last week, the absolute level of a firm’s stock price is arbitrary, as it can be easily manipulated by the firm through altering the number of shares outstanding (for example, by splitting the stock). Despite this obvious fact, the research into investor behavior has found a strong preference among individuals for …Read More.
CAPM was the first formal asset pricing model. Market beta was its sole factor. With the 1992 publication of their paper, “The Cross-Section of Expected Stock Returns,” Eugene Fama and Kenneth French introduced a new-and-improved three-factor model, adding size and value to market beta as factors that not only provided premiums, but helped further explain …Read More.
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 …Read More.