January 30, 2019 - Momentum Investing, Mutual/Hedge Funds
A subscriber inquired about a “hot hand” strategy that each year picks the top performer from a family of diversified equity mutual funds (not including sector funds) and holds that winner the next year. To evaluate this strategy, we consider Vanguard diversified equity mutual funds with inceptions no later than September 2011. The test period is… Keep Reading
January 29, 2019 - Value Premium, Volatility Effects
Do investors systematically undervalue stocks that have relatively large book-to-market fluctuations? In their December 2018 paper entitled “The Value Uncertainty Premium”, Turan Bali, Luca Del Viva, Menna El Hefnawy and Lenos Trigeorgis test whether book-to-market volatility relates positively to future returns. They specify book-to-market volatility as standard deviation of daily estimated book-to-market ratios divided by their average over the past 12… Keep Reading
January 25, 2019 - Miscellaneous
Below is a weekly summary of our research findings for 1/22/19 through 1/25/19. These summaries give you a quick snapshot of our content the past week so that you can quickly decide what’s relevant to your investing needs. Subscribers: To receive these weekly digests via email, click here to sign up for our mailing list.
January 25, 2019 - Big Ideas, Investing Expertise
Might purveyors of trading strategies be presenting performance results biased by stopping them when falsely successful? In other words, might they be choosing lucky closing conditions for reported positions? In the December 2018 revision of their paper entitled “p-Hacking and False Discovery in A/B Testing”, Ron Berman, Leonid Pekelis, Aisling Scott and Christophe Van den Bulte investigate whether online A/B… Keep Reading
January 24, 2019 - Bonds, Equity Premium, Strategic Allocation
Failure rate, the conventional metric for evaluating retirement portfolios, does not distinguish between: (1) failures early versus late in retirement; or, (2) small and large surpluses (bequests). Is there a better way to evaluate retirement portfolios? In their December 2018 paper entitled “Toward Determining the Optimal Investment Strategy for Retirement”, Javier Estrada and Mark Kritzman propose coverage ratio,… Keep Reading
January 22, 2019 - Size Effect, Volatility Effects
Do unconventional portfolio construction techniques obscure how, and how well, betting against beta (BAB) works? In their November 2018 paper entitled “Betting Against Betting Against Beta”, Robert Novy-Marx and Mihail Velikov revisit the BAB factor, focusing on interpretation of three unconventional BAB construction techniques: Rank weighting of stocks – BAB employs rank weighting rather than equal or value weighting,… Keep Reading
January 18, 2019 - Miscellaneous
Below is a weekly summary of our research findings for 1/14/19 through 1/18/19. These summaries give you a quick snapshot of our content the past week so that you can quickly decide what’s relevant to your investing needs. Subscribers: To receive these weekly digests via email, click here to sign up for our mailing list.
January 18, 2019 - Momentum Investing, Strategic Allocation
The Simple Asset Class ETF Momentum Strategy (SACEMS) each month picks winners based on total return over a specified ranking (lookback) interval from the following eight asset class exchange-traded funds (ETF), plus cash: PowerShares DB Commodity Index Tracking (DBC) iShares MSCI Emerging Markets Index (EEM) iShares MSCI EAFE Index (EFA) SPDR Gold Shares (GLD) iShares Russell 2000… Keep Reading
January 16, 2019 - Fundamental Valuation, Strategic Allocation
Can stock return forecasts from fundamental analysis make conventional mean-variance stock portfolio optimization work? In their December 2018 paper entitled “Optimized Fundamental Portfolios”, Matthew Lyle and Teri Yohn construct a portfolio that combines fundamentals-based stock return forecasts and mean-variance optimization and then compare results with portfolios from each employed separately. To suppress implementation costs, they focus on long-only portfolios… Keep Reading
January 15, 2019 - Momentum Investing, Technical Trading
Are moving averages or intrinsic (time series) momentum theoretically better for following trends in asset prices? In their November 2018 paper entitled “Trend Following with Momentum Versus Moving Average: A Tale of Differences”, Valeriy Zakamulin and Javier Giner compare from a theoretical perspective effectiveness of four popular trend following rules: Intrinsic Momentum – buy (sell) when the closing… Keep Reading