Longer Lives Lower Interest Rates
Ever since the global financial crisis, the real interest rates of developed economies have remained in negative territory. Nominal interest rates hover near zero, and inflation rates, although quite low for historical standards, have remained positive (in most countries, at...
Predictable & Skewed Returns
There has been a lot of research recently that investigates the link between stock returns and higher moments of the return distribution, specifically the skewness of returns. This link, unfortunately, is frequently ignored by more standard measures of market risk...
Ignore Liquidity At Your Peril
Liquidity is valuable to investors. Therefore, investors demand higher expected returns for less liquid stocks. The liquidity of an asset market refers to the ability of investors to buy and sell significant quantities of that asset, quickly, at low cost...
Foxes More Right Than Hedgehogs
Philip Tetlock, who teaches psychology, business and political science at the University of California, Berkeley, is also the author of “Expert Political Judgment: How Good Is It? How Can We Know?” The book, which was published in 2006, discusses the...
A Classic Factor Model Improves
There has been a great deal of focus by the academic community in recent years on fine-tuning the various factor models used to explain the differences in returns of diversified portfolios. Marie Lambert, Boris Fays and Georges Hubner contribute to...
When Risk Goes Unrewarded
Risk-based asset pricing theory suggests, simply, that assets bearing a higher risk should compensate investors with higher returns. While most papers investigating the risk-return relationship of assets are focused on equity markets, surprisingly few studies explore this phenomenon in currency...
An Active Manager Strikes Out
Bloomberg TV recently invited me on to their new show, Bloomberg GO, for a short debate with David Barse, CEO of Third Avenue Management, on active versus passive investing. After stating that funds offered by Third Avenue, which have more...
Highest Expected Returns Not Always Best
A regular reader of my articles contacted me recently to discuss current valuations and a value-oriented strategy. He observed: “It doesn’t matter which approach you like: a value investor doesn’t prefer U.S. stocks now.” He also pointed out that, while...
Dividends An Illogical Preference
A large body of literature examines whether managers of actively managed funds add value to their investors by generating abnormal returns. Unfortunately, not only do the vast majority fail to do so, but the evidence, as presented in my book,...
Valuation Metrics In Perspective
It’s well-established in the literature that valuation metrics—such as the dividend yield (D/P) and the earnings yield (E/P), as well as its cousin, the Shiller CAPE 10—provide important information in terms of future expected returns. In fact, these metrics are...
