The Carry Trade Defies Theory
The success of the carry trade strategy has led to its widespread proliferation, despite the fact that it contradicts economic theory. In short, this strategy involves borrowing (going short) a currency with a relatively low interest rate and using the...
When Bonds Act Like Stocks
Research into the determinants of fixed-income returns have found that a number of stock and bond market risk factors can be shown to demonstrate explanatory power beyond the standard term-structure variables. Ivelina Pavlova, Ann Marie Hibbert, Joel Barber and Krishnan...
Battle Of New Factor Models
In their groundbreaking paper, “Digesting Anomalies: An Investment Approach,” Kewei Hou, Chen Xue and Lu Zhang proposed a new four-factor asset pricing model that goes a long way toward explaining many of the anomalies neither the Fama-French three-factor nor subsequent...
Behavioral Finance Trumped
Richard Thaler, a professor of behavioral science and economics at the University of Chicago Booth School of Business, is widely considered one of behavioral finance’s founding fathers (along with Daniel Kahneman and Amos Tversky). His excellent new book, “Misbehaving,” is...
It’s OK To Ignore Your Portfolio
Regular readers of my books and articles are likely well aware that I’m a big fan of the field of behavioral finance. In fact, I try to read everything I can on the subject. The first half of my book,...
Hedge Funds Continue To Fail
The first half of 2015 again brought hedge funds little in the way of relief from their historically poor performance. Hedge funds entered 2015 coming off their sixth-straight year of trailing U.S. stocks by significant margins. And for the 10-year...
Don’t Derail Your Plan Over Greece
Investors certainly have enough to worry about these days. In addition to concerns about the Greek crisis itself, a lot of investors are worried about the risk of it spreading. Greece did indeed default on its International Monetary Fund (IMF)...
Ignore The Dividend Hype
Even though financial theory has long held that dividend policy should be irrelevant to stock returns, there has been a rush in recent years to invest in dividend-paying stocks. This trend has been fueled both by media hype and the...
The Problem With Structured Notes
Over the past decade, structured investment products, also known as equity- or index-linked notes, have become increasingly common in the portfolios of retail investors. In 2013 alone, more than $40 billion in structured notes were issued. And this is not...
The Truth About The Carry Trade
One of the more popular strategies pursued by hedge funds is the currency carry trade. The strategy involves borrowing (going short) a currency with a relatively low interest rate and then using the proceeds to purchase (going long) a currency...
