Investing Research Articles

Smart beta strategies weight stocks according to one or a few historically predictive factors such as value, size, momentum or volatility rather than market capitalization. What are the cautions for investing in smart beta funds? In their April 2015 paper entitled “Smart Beta: Too Good to be True?”, Bruce Jacobs and Kenneth Levy critique the belief that smart beta strategies… Keep Reading

Does short-term (one-month) stock return reversal persist? If so, is there a best way to refine and exploit it? In their March 2012 paper entitled “Short-Term Return Reversal: the Long and the Short of It”, Zhi Da, Qianqiu Liu and Ernst Schaumburg decompose the total short-term reversal into an across-industry component (long prior-month loser industries… Keep Reading

Do smart beta exchange-traded funds (ETF), which systematically tilt holdings to capture one or more factor premiums (such as size, value, momentum, quality, beta and volatility), offer net value to investors? In the April 2015 initial draft of his paper entitled “How Smart are ‘Smart Beta’ ETFs? Analysis of Relative Performance and Factor Timing”, Denys Glushkov assesses whether… Keep Reading

Does the expanding set of exchange-traded funds (ETF) support reliable replication (cloning) of future returns for some hedge funds? In their December 2014 paper entitled  “Smart Beta ETF Portfolios: Cloning Beta Active Hedge Funds”, Jun Duanmu, Yongjia Li and Alexey Malakhov test replication of top risk factor-driven (beta-active) hedge funds using portfolios of ETFs. The selected hedge funds perform… Keep Reading

Does the expanding set of exchange-traded funds (ETF) support reliable replication (cloning) of future hedge fund returns? In their March 2014 paper entitled “In Search of Missing Risk Factors: Hedge Fund Return Replication with ETFs”, Jun Duanmu, Yongjia Li and Alexey Malakhov investigate the use of ETFs as factors in constructing hedge fund clones. They… Keep Reading

Why does the gross profitability stock-screening strategy work? In their December 2013 paper entitled “Factoring Profitability”, Michael Branch, Lisa Goldberg and Ran Leshem explore the drivers of the gross profitability strategy for U.S. stocks. Specifically, they examine the contributions of factors in the conventional Fama-French-Carhart four-factor (FFC4) model of equity returns and the Barra USE4… Keep Reading

Is Warren Buffett’s track record explicable and replicable? In the June 2018 update of their paper entitled “Buffett’s Alpha”, Andrea Frazzini, David Kabiller and Lasse Pedersen model Warren Buffett’s exceptional investing performance based on replicating exposures of Berkshire Hathaway overall and of its publicly traded holdings to six factors. Four of the factors are those conventionally used to… Keep Reading

Has the free flow of capital since the 1990s weakened geographic (country-based) equity market diversification benefits? In their November 2011 paper entitled “Is World Stock Market Co-Movement Changing?”, Douglas Blackburn and N. K. Chidambaran examine recent trends in co-movement of stock markets worldwide. Their analysis employs principal component analysis to identify country, regional and world equity market return factors,… Keep Reading

…investors may be able to streamline the search for anomalous returns by focusing on two factors: (1) firm size, representing the rational risk of failure; and, (2) a seasonal factor related to operating profit and buybacks-secondaries, representing irrational mispricing.

Do differences in expectations between institutional and individual investors in stocks and bonds, as quantified in weekly legacy Commitments of Traders (COT) reports, offer exploitable timing signals? In the February 2019 revision of his paper entitled “Want Smart Beta? Follow the Smart Money: Market and Factor Timing Using Relative Sentiment”, flagged by a subscriber, Raymond… Keep Reading