Investing Research Articles

Does separating the active (alpha) and passive (market exposure, or beta) components of an overall equity investment strategy, thereby isolating turnover, reduce overall tax burden? In their May 2018 paper entitled “The Tax Benefits of Separating Alpha from Beta”, Joseph Liberman, Clemens Sialm, Nathan Sosner and Lixin Wang investigate the tax implications of separating alpha from beta for… Keep Reading

Is it better to build equity multifactor portfolios by holding distinct single-factor sub-portfolios, or by picking only stocks that satisfy multiple factor criteria? In their September 2017 paper entitled “Smart Beta Multi-Factor Construction Methodology: Mixing vs. Integrating”, Tzee-man Chow, Feifei Li and Yoseop Shim compare long-only multifactor portfolios constructed in two ways: Integrated – each quarter, pick the 20%… Keep Reading

Do broad (capitalization-weighted) stock market indexes exhibit factor tilts that may indicate concentrations in corresponding risks? In their August 2017 paper entitled “What’s in Your Benchmark? A Factor Analysis of Major Market Indexes”, Ananth Madhavan, Aleksander Sobczyk and Andrew Ang examine past and present long-only factor exposures of several popular market capitalization indexes. Their analysis involves (1) estimating the… Keep Reading

Has availability of liquid exchange-traded funds (ETF) designed to exploit predictive stock market factors (smart beta ETFs) affected the mutual fund industry? In their May 2017 paper entitled “How Do Smart Beta ETFs Affect the Asset Management Industry? Evidence from Mutual Fund Flows”, Jie Cao, Jason Hsu, Zhanbing Xiao and Xintong Zhan examine the impact of ETFs that do… Keep Reading

How can investors capture returns from widely accepted risk factors associated with asset classes and subclasses? In the June 2013 version of his book chapter entitled “Factor Investing”, Andrew Ang provides advice on capturing risk premiums associated with factors such as value, momentum, illiquidity, credit risk and volatility risk. Based on the body of research,… Keep Reading

Does a simple volatility-based risk management approach substantially enhance performance of a Betting-Against-Beta (BAB) strategy (long stocks with low market beta and short stocks with high market beta)? In their November 2016 paper entitled “Managing the Risk of the ‘Betting-Against-Beta’ Anomaly: Does It Pay to Bet Against Beta?”, Pedro Barroso and Paulo Maio examine a BAB risk management strategy… Keep Reading

Does a factor (style) premium model identify exploitable abnormal corporate bond returns? In their March 2015 paper entitled “Investing with Style in Corporate Bonds”, Ronen Israel, Johnny Kang and Scott Richardson investigate the usefulness of four bond return factors: Carry – the fixed spread that must be added to the U.S. Treasuries yield curve such that the discounted payments of the… Keep Reading

Does use of alphas from linear factor models to identify anomalies in U.S. stock returns mislead investors? In the February 2013 draft of their paper entitled “Using Maximum Drawdowns to Capture Tail Risk”, Wesley Gray and Jack Vogel investigate maximum drawdown (largest peak-to-trough loss over a time series of compounded returns) as a simple measure… Keep Reading

How do specialized stock indexes relate to commonly used equity risk factors? In his February 2012 paper entitled “Evaluating Alternative Beta Strategies”, Xiaowei Kang examines risk exposures (betas), construction methodologies and historical performances of alternative stock indexes such as those based on value, low-volatility and diversification strategies. He considers five risk factors: (1) market, representing excess return… Keep Reading

Does hedge fund outperformance derive from systematically superior timing or from superior asset selection? In the December 2010 version of her paper entitled “Can Factor Timing Explain Hedge Fund Alpha?”, Hyuna Park decomposes alpha generated by hedge funds into security selection and timing with respect to eight risk factors (including U.S. and emerging equity risk… Keep Reading