Governments are largely insulated from market forces. Companies are not. Investments in stocks therefore carry substantial risk in comparison with holdings of government bonds, notes or bills. The marketplace presumably rewards risk with extra return. How much of a return premium should investors in equities expect? These blog entries examine the equity risk premium as a return benchmark for equity investors.
Is the conventional investment advice to allocate 60%-80% to stocks and 20%-40% to bonds in a personal long-term portfolio sensible? In his September 2026 paper entitled “Don’t Fix Your Fixed Income Allocation”, Douglas Lucas examines the historical U.S. experience of such advice based on Shiller’s U.S. stock market and 10-year U.S. Treasury note (T-note) returns over investment horizons of 10, 20, 30 and 40 years. He adds 0.5% to T-note annual returns to account for the credit premium of corporate bonds. He rebalances annually. Using monthly Shiller data during January 1871 through June 2026, he finds that:Keep Reading
Can large language models (LLM) rapidly replicate findings of financial market research? In his August 2026 paper entitled “Does Empirical Finance Replicate?”, Dmitriy Muravyev tasks an autonomous LLM pipeline with reproducing the main result of 5,430 empirical papers published in the Journal of Finance, Journal of Financial Economics and Review of Financial Studies from 2000 to 2020, both for the original data (in-sample) and then for later years (our-of-sample). Limited by data availability, the LLM is able to generate 1,328 in-sample replications, for which 1,005 have enough post-study data for out-of-sample tests. Using models specified in published papers and replication data as available, he finds that:Keep Reading
Are equity multifactor strategies, as implemented by exchange-traded funds (ETF), attractive? To investigate, we consider eight multifactor ETFs, all currently available:
iShares Edge MSCI Multifactor USA (LRGF) – holds large and mid-cap U.S. stocks with focus on quality, value, size and momentum, while maintaining a level of risk similar to that of the market. The benchmark is iShares Russell 1000 (IWB).
iShares Edge MSCI Multifactor International (INTF) – holds global developed market ex U.S. large and mid-cap stocks based on quality, value, size and momentum, while maintaining a level of risk similar to that of the market. The benchmark is iShares MSCI ACWI ex US (ACWX).
John Hancock Multifactor Large Cap (JHML) – holds large U.S. stocks based on smaller capitalization, lower relative price and higher profitability, which academic research links to higher expected returns. The benchmark is SPY.
John Hancock Multifactor Mid Cap (JHMM) – holds mid-cap U.S. stocks based on smaller capitalization, lower relative price and higher profitability, which academic research links to higher expected returns. The benchmark is SPDR S&P MidCap 400 (MDY).
JPMorgan Diversified Return U.S. Equity (JPUS) – holds U.S. stocks based on value, quality and momentum via a risk-weighting process that lowers exposure to historically volatile sectors and stocks. The benchmark is SPY.
Xtrackers Russell 1000 Comprehensive Factor (DEUS) – seeks to track, before fees and expenses, the Russell 1000 Comprehensive Factor Index, which seeks exposure to quality, value, momentum, low volatility and size factors. The benchmark is IWB.
Vanguard U.S. Multifactor (VFMF) – uses a rules-based quantitative model to evaluate U.S. common stocks and construct a U.S. equity portfolio that seeks to achieve exposure to multiple factors across market capitalizations (large, mid and small). The benchmark is iShares Russell 3000 (IWV).
Are preferred stock strategies, as implemented by exchange-traded funds (ETF), attractive? To investigate, we consider seven of the largest preferred stock ETFs, all currently available, in order of longest to shortest available histories:
Invesco Financial Preferred (PGF) – generally invests at least 90% of assets in preferred securities of financial institutions.
Invesco Preferred (PGX) – tracks performance of fixed-rate preferred securities issued in the U.S.
SPDR ICE Preferred Securities (PSK) – seeks exposure to non-convertible preferred securities with par $25 and aggregate minimum par value $250 million.
VanEck Vectors Preferred Securities ex Financials (PFXF) – tracks performance of U.S. exchange-listed hybrid debt, preferred stock and convertible preferred stock issued by non-financial corporations.
First Trust Preferred Securities and Income (FPE) – normally invests at least 80% of assets (including borrowings) in preferred securities and income-producing debt securities, including corporate bonds, high-yield securities and convertible securities.
How do returns of different asset classes recently interact with inflation as measured by monthly change in the not seasonally adjusted, all-items consumer price index (CPI) from the U.S. Bureau of Labor Statistics? To investigate, we look at lead-lag relationships between change in CPI and returns for each of the following 10 exchange-traded fund (ETF) asset class proxies:
Using monthly total CPI values and monthly dividend-adjusted prices for the 10 specified ETFs during December 2007 (limited by EMB) through mid-August 2026, we find that:Keep Reading
A subscriber requested measurement of a “premium” associated with U.S. stocks relative to those of other developed markets by looking at the difference in returns between the following two exchange-traded funds (ETF):
Do exchange-traded funds (ETF) that hold convertible corporate bonds offer attractive performance? To investigate, we compare performance statistics for the following four convertible bond ETFs, three available and one dead, to those for a monthly rebalanced 60%-40% combination of SPDR S&P 500 ETF Trust (SPY) and iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD):
We focus on average return, standard deviation of returns, reward/risk (average return divided by standard deviation of returns), compound annual growth rate (CAGR) and maximum drawdown (MaxDD), all based on monthly data. Using monthly dividend-adjusted returns for all specified ETFs since inceptions and for SPY and LQD over matched sample periods through July 2026, we find that:Keep Reading
Do exchange-traded funds (ETF) focused on cybersecurity stocks offer attractive performance? To investigate, we compare performance statistics of five cybersecurity ETFs, all currently available, to those of Invesco QQQ Trust (QQQ), as follows:
We focus on average return, standard deviation of returns, reward/risk (average return divided by standard deviation of returns), compound annual growth rate (CAGR) and maximum drawdown (MaxDD), all based on monthly data. Using monthly dividend-adjusted returns for all specified ETFs since inceptions and for QQQ over matched sample periods, all through July 2026, we find that:Keep Reading
How should global investors assess country sovereign bond and equity risks? In his July 2026 paper entitled “Country Risk: Determinants, Measures and Implications – The 2026 Edition”, Aswath Damodaran examines country risk from multiple perspectives. To estimate a country risk premium, he considers direct and indirect measures of country government bond risk and country equity risk. Based on a variety of sources and methods, he concludes that:Keep Reading
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