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An Interesting Test of Market Efficiency

Date14 Nov 2016

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Japan’s Government Pension Investment Fund (GPIF) is the world’s biggest state investor, trumping all other managed government retirement and sovereign wealth funds. Prime Minister Shinzo Abe’s drive to spur the Japanese economy out of its two-decade-and-growing economic slump, known as Abenomics, has pushed the GPIF to plow more money into risky investments, aiming both to...

“Free Lunch” Investing Takes Time to Cook

Date14 Nov 2016

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As the director of research for The BAM Alliance, I’ve been getting lots of calls recently from investors questioning their international equity investments. This hasn’t been a surprise, as any time an asset class does poorly, a significant number of investors will question why they own that asset. One particular inquiry I received addressed the...

The Truth About Stock Prices

Date14 Nov 2016

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In the last few weeks, I’ve unpacked studies addressing both the nominal price illusion and the nominal price premium. So today I’ll answer a related question: Do nominal stock prices really matter? Because the level of a company’s stock price is arbitrary—it can be manipulated, for example, by firms via adjustments in the number of...

What The Stock Market Wants This Election, And What You Should Do In Your Portfolio

Date14 Nov 2016

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We’ll know soon enough who America chooses as its next president, but the market has already voted. Who does the stock market “want” to win? Hillary Clinton. This isn’t a partisan statement, but simply a statement of fact. There may be several indicators to which we could point, but the glaring one is this: When...

Low Priced Stocks No Bargain

Date14 Nov 2016

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As I wrote about last week, the absolute level of a firm’s stock price is arbitrary, as it can be easily manipulated by the firm through altering the number of shares outstanding (for example, by splitting the stock). Despite this obvious fact, the research into investor behavior has found a strong preference among individuals for...

Bottom-Up Works Best With Multiple Factors

Date14 Nov 2016

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CAPM was the first formal asset pricing model. Market beta was its sole factor. With the 1992 publication of their paper, “The Cross-Section of Expected Stock Returns,” Eugene Fama and Kenneth French introduced a new-and-improved three-factor model, adding size and value to market beta as factors that not only provided premiums, but helped further explain...

How Risk & Uncertainty Affect Returns

Date14 Nov 2016

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Asset pricing models imply that equity portfolios’ time-varying exposure to the market risk and uncertainty factors carries with it positive risk premiums. Turan Bali and Hao Zhou contribute to the body of literature on this topic through the study “Risk, Uncertainty, and Expected Returns,” which appeared in the June 2016 issue of the Journal of...

What you can—and can’t—learn from a tax return

Date07 Nov 2016

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Donald Trump said in the first presidential debate that not much could be learned from his tax returns. Financial advisor Tim Maurer sets the story straight, explaining exactly what… Read the rest of the article on CNBC.

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