Beware Lure of Market Timing
Market-timing strategies attempt to outperform a buy-and-hold strategy by anticipating the future direction of a market. They can work, but mostly they don’t. First, such strategies are based on the belief that future security prices are predictable, typically through the...
Risk & The Two Faces Of Beta
There’s a growing body of evidence that beta is actually a two-sided, not a one-sided, “coin,” and those two faces are separated by perceptions of risk. Being risk averse, most investors care more than just about the standard deviation of...
Improving on Fama-French
In 1993, the Fama-French three-factor (beta, size and value) model replaced the single-factor capital asset pricing model (CAPM) and became the standard model in finance, explaining more than 90 percent of the variation of returns of diversified portfolios. While the...
Explaining Momentum Factors
Since the publication of the study “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency” in 1993, the momentum anomaly—buying past winners and selling past losers, generates abnormal returns in the short run—has received a lot of attention. This anomaly...
The Perils Of The Carry Trade
What’s known as the carry trade is one of the more popular strategies of hedge funds, and it’s also becoming popular for investors seeking alternative fixed-income strategies that can provide higher yields in today’s environment of low rates. The strategy...
Dividend Streams & Returns
Dividend payments have been on a systematic decline since 1972, and the percentage of firms paying a dividend has declined from 63.8 percent in 1972 to 30.4 percent in 2011. The question is now, What does paying dividends tell us...
Volatility & Corrosive Contango
The presence of regularly occurring anomalies in conventional economic theory led to the development of the field of behavioral finance, and the volatility anomaly is one that deserves some special attention. Anomalies directly violate modern financial and economic...
Dividends and Behavioral Econ
It’s long been known that many investors have a preference for cash dividends. But from the perspective of classical financial theory, this behavior is an anomaly. Here’s why. It’s perplexing behavior because before taking into consideration what are referred to...
The Dividend-ETF Trap
Over the last few years we’ve seen a dramatic increase in interest in dividend-paying stocks. The heightened interest has been fueled by both the media hype and the current regime of interest rates that are well below historical averages....
Faint Praise For 130/30 Funds
Hedged (long/short) mutual funds are the money management industry’s answer to illiquid hedge fund strategies. The premise of long/short funds is that the managers can apply their security-selection skills to a broader opportunity set, which is to say they can...
