Another Angle On Factor Diversification
Last week, we examined the data (from my new book, “Your Complete Guide to Factor-Based Investing,” which I co-authored with Andrew Berkin) on the odds that the premiums associated with some common investment factors would produce a negative return over...
Election Revives Old Myths
The results of the U.S. presidential election not only surprised almost all the gurus who were saying that a Hillary Clinton victory was a sure thing, but also those forecasting that, if by some miracle Donald Trump won, a stock...
The Perils Of Bargain Hunting
As I have been discussing in a series of articles (which you can find here, here and here), we now have a substantial body of evidence demonstrating that individual investors possess a preference for low-priced equities. This is anomalous behavior,...
Here’s A Better Measure Of Value
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...
New Book Shines Light On 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. This is a big problem for the efficient...
Diversification For The Long Term
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....
The Truth About Stock Prices
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...
Low Priced Stocks No Bargain
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...
Bottom-Up Works Best With Multiple Factors
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...
How Risk & Uncertainty Affect Returns
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,...
