Getting To The Cause Of Quality
Among the hot “smart beta” strategies into which investors are pouring assets is quality. For example, the iShares Edge MSCI USA Quality Factor ETF (QUAL | A-84), which is only about three years old, already has $2.7 billion in assets....
Arbitrage Capital Increases Market Efficiency
The hypothesis of an efficient market is based on the concept that informed, rational traders would arbitrage away any temporary deviations from “correct” prices. Thus, price efficiency depends upon the actions of arbitrageurs and the availability of arbitrage capital. When...
Investors Like Lotteries
There’s substantial evidence from the field of behavioral finance that individual investors have a strong preference for investments that exhibit the same characteristics as lottery tickets. Two of these characteristics are high kurtosis (or fat tails) and positive skewness, meaning...
Low Vol Advantage Not What You’d Expect
One of the problems for the first formal asset pricing model developed by financial economists, the Capital Asset Pricing Model (CAPM), was that it predicted a positive relationship between risk and return. However, empirical studies have found the actual relationship...
Differing Definitions Of Quality
The 1997 publication of Mark Carhart’s paper, “On Persistence in Mutual Fund Performance,” led to the four-factor model (which added momentum to market beta, size and value) becoming the workhorse model in finance. The next major contribution came from Robert...
Choosing Between Roth & Traditional IRAs
Among the most important decisions investors make is their choice of location for assets within the various alternatives available for retirement (tax-advantaged) accounts. Allocating between a traditional IRA (a pretax, tax-deferred account) and a Roth IRA (a post-tax, tax-free account)...
Costs Of Socially Responsible Investing
Socially responsible investing (SRI) aligns ethical and financial concerns for investors. SRI has gradually developed over time to include the consideration of firms’ environmental, social and governance (ESG) performance. Of note is that, while SRI has evolved, the original practice...
Virtues Of Do It Yourself Bond Laddering
Bond ladders are frequently criticized in the financial media and even among some professional advisors (who, I would point out, are often able to use only bond mutual funds or ETFs). Earlier this week, we corrected some common misperceptions regarding...
Reconsidering Corporate Bonds
A number of articles were written at the end of 2008 noting the fact that, for the prior 40-year period, stocks had not outperformed safer bonds. For the period 1969 through 2008, the S&P 500 Index returned 9%, and so...
Declining Or Rising Equity Strategy In Retirement?
Traditional retirement planning calls for gradually reducing an investor’s equity allocation and increasing the allocation to safe bonds. Perhaps the most well-known example of this concept is the adage that your stock allocation should be equal to 100 minus your...
