Contagion & Corporate Credit
Contrary to what most investors believe, empirical studies of corporate bond premia have found that only a small fraction of observed credit spreads can be explained by expected losses from defaults. For example, research has found that the contemporaneous return...
Building Optimal Value Portfolios
In 1981, Sanjoy Basu’s paper, “The Relationship Between Earnings’ Yield, Market Value and Return for NYSE Common Stocks,” found that the positive relationship between the earnings yield (E/P) and average return is left unexplained by market beta. Then, in 1985,...
Taxing The Yale Model
The success of the Yale Endowment has been highly publicized, leading many endowments, foundations and more recently, even high net worth individuals, to consider adopting the so-called Yale Model. The Yale Model includes a focus on alternative investments and attempts...
Tax Managed Funds Fail To Impress
There is an overwhelming body of evidence demonstrating that active management is a loser’s game when it comes to both stock and bond investing. The evidence led author Charles Ellis to call active management just that—a loser’s game—because while it’s...
The Bad News Is Old News
In my previous post, we reviewed the historical evidence on bear markets and financial crises, as well as the sources of the latest crisis. Today, we pick up by discussing reasons why all the bad news you’ve been hearing doesn’t...
Parallels Of Betting & Investing
Two of the most-well-known factors that help explain stock returns are the value effect (where equities with lower prices relative to metrics—such as book value, earnings, cash flow, sales and dividends—tend to outperform the equities with higher prices relative to...
The Cheap Volatility Illusion
As I write this on Aug. 10, despite all the economic problems facing investors (such as Greece, the slowing Chinese economy, a bear market in Chinese stocks, the collapse in commodity prices and Puerto Rico’s default), the VIX index, a...
Don’t Join The China Panic
It’s not as if investors didn’t already have enough to worry about with the Greek crisis, Puerto Rico’s default, the Iranian nuclear agreement, ISIS, the Fed ending its zero-interest-rate policy in the near future, and gurus such as GMO’s Jeremy...
Financialization And Commodities
Slightly more than a decade ago, several studies were published raising the possibility that an allocation to commodities (in the shape of fully collateralized futures) could improve the efficiency of a portfolio due to the diversification benefit (the low to...
‘Gurus’ Without A Clue
In my role as director of research for The BAM Alliance, a community of more than 140 registered investment advisor firms, I’m frequently asked both by clients and other advisors to address the issues raised by market “gurus” who make...
