Learning Center

Explaining The ‘Disposition Effect’

Date19 Sep 2016

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There is a large body of academic evidence demonstrating that individual investors are subject to the “disposition effect.” Those suffering from this phenomenon, which was initially described by Hersh Shefrin and Meir Statman in their 1985 paper, “The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence,” tend to sell...

The Irrelevance of Dividends

Date12 Sep 2016

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Research has established that dividend policy should be irrelevant to stock returns, yet investors have long demonstrated an irrational preference for them. Mutual fund providers are well-aware of this fact. Earlier this week, we reviewed a pair of studies showing that mutual fund managers exploit investors’ well-documented preference for cash dividends to attract assets by artificially “juicing”...

An Interview with Larry Swedroe Ahead of the Evidence-Based Investing Conference

Date12 Sep 2016

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Larry Swedroe sits down to talk authorship, factor investing, smart beta and how to prevent political views from impacting your investment decisions in an interview with Robin Powell ahead of this year’s new Evidence-Based Investing Conference. Find it on EvidenceInvestor.co.uk By clicking on any of the links above, you acknowledge that they are solely for...

Revised Catastrophe Bonds Worth A Look

Date05 Sep 2016

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Insurance-linked securities (ILS) are a relatively recent financial innovation designed to allow risk to transfer from the insurance industry to the financial markets. Pension funds, banks and sovereign wealth funds are the largest holders of ILS, and hedge funds recently have started to specialize in managing ILS portfolios. Catastrophe (cat) bonds make up the largest...

Socially Responsible Investing Is A (Minor) Drag

Date05 Sep 2016

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Socially responsible investing, which is designed to address investors’ ethical and financial concerns, has gradually developed to include the consideration of firms’ environmental, social and governance (ESG) performance An interesting question is whether ESG investing has an impact on risk-adjusted returns. It certainly can lead to less efficient diversification (due to screening out companies and...

The Cause Of Myopic Loss Aversion

Date05 Sep 2016

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From 1927 through 2015, there has been a very large difference between the returns to the S&P 500 and the returns to risk-free Treasury bills—about 8.5% on an annual average basis and about 6.7% on an annualized basis. This large spread is frequently referred to as the equity premium puzzle, because unless investors possess implausibly...

Mutual Funds Lace Portfolios with Dividend “Juice”

Date05 Sep 2016

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It has long been known that many investors have a preference for cash dividends. From the perspective of classical financial theory, this behavior is an anomaly. The reason is that, in their 1961 paper, “Dividend Policy, Growth, and the Valuation of Shares,” Merton Miller and Franco Modigliani famously established that dividend policy should be irrelevant...

Don’t Let Wall Street Fool You Into Taking Too Much Risk

Date05 Sep 2016

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Competition for your dollars creates an inertia that always seems to lead Wall Street down the path of unhelpfully increasing the risk in your portfolio. The recent Wall Street Journal headline, “Bond Funds Turn Up Risk,” illustrates an especially alarming trend. Specifically, of increasing the risk in the part of your portfolio that should be...

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