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Investing Research Articles

518 Research Articles

Exploiting Factor Premiums via Smart Beta Indexes

Do smart beta indexes efficiently exploit factor premiums? In his April 2016 paper entitled “Factor Investing with Smart Beta Indices”, David Blitz investigates how well smart beta indexes, which deviate from the capitalization-weighted market per mechanical rules, capture corresponding factor portfolios. He consider five factors: value, momentum, low-volatility, profitability and investment. He measures their practically exploitable premiums via returns on long-only… Keep Reading

Minimum Standards for Factor Timing Studies

Why do factor timing strategies that shine in research papers disappoint in real life? In his May 2025 paper entitled “Caveats of Simple Factor Timing Strategies”, David Blitz discusses the following  simple factor timing strategies with material and statistically significant outperformance per published studies: Short-term factor momentum – each month allocates 40%, 30%, 20%, 10%… Keep Reading

Improving Established Multi-factor Stock-picking Models Is Hard

Is more clearly better in terms of number of factors included in a stock screening strategy? In the October 2014 draft of their paper entitled “Incremental Variables and the Investment Opportunity Set”, Eugene Fama and Kenneth French investigate the effects of adding to an established multi-factor model of stock returns an additional factor that by itself has power to… Keep Reading

Mutual Fund Exploitation of Equity Factor Premiums

How well do mutual funds exploit theoretical (academic) equity factor premiums, and how well do investors exploit such exploitation? In their January 2019 paper entitled “Factor Investing from Concept to Implementation”, Eduard Van Gelderen, Joop Huij and Georgi Kyosev examine: (1) how performances of mutual funds that target equity factor premiums (low beta, size, value, momentum, profitability, investment)… Keep Reading

Effects of Capitalizing Intangibles on Factor Models of Stock Returns

Under current U.S. accounting rules, many investments in innovation, human resources and brand that are crucial to long-term competitiveness immediately reduce operating profits and earnings (are expensed rather than capitalized). Does failure to incorporate such intangible investments in firm investment and valuation ratios (book-to-market, profitability and return on equity) harm equity investment decisions? In their… Keep Reading

Live Performance of Alternative Beta Products

Are the backtests provided for alternative beta investment products representative of their future live performance? In their March 2016 paper entitled “Quantifying Backtest Overfitting in Alternative Beta Strategies”, Antti Suhonen, Matthias Lennkh and Fabrice Perez compare the backtested and live performances of alternative beta products offered by investment banks. The strategies underlying these products are formulaic and non-discretionary, designed to extract… Keep Reading

Does Active Stock Factor Timing/Tilting Work?

Does active stock factor exposure management boost overall portfolio performance? In their November 2018 paper entitled “Optimal Timing and Tilting of Equity Factors”, Hubert Dichtl, Wolfgang Drobetz, Harald Lohre, Carsten Rother and Patrick Vosskamp explore benefits for global stock portfolios of two types of active factor allocation: Factor timing – exploit factor premium time series predictability based on economic indicators and… Keep Reading

Factor Exploitability Uncertainty Due to Study Design Choices

Do the choices researchers make when constructing factor portfolios to explain stock returns materially affect their findings? In their June 2022 paper entitled “Mind Your Sorts”, Amar Soebhag, Bart van Vliet and Patrick Verwijmeren examine the extent to which such construction choices affect factor performance. They consider 11 distinct long-short factors as used in widely… Keep Reading

Machine Learning Model Design Choice Zoo?

Are the human choices in studies that apply machine learning models to forecast stock returns critical to findings? In other words, is there a confounding machine learning design choices zoo? In their November 2024 paper entitled “Design Choices, Machine Learning, and the Cross-section of Stock Returns”, Minghui Chen, Matthias Hanauer and Tobias Kalsbach analyze effects… Keep Reading

Equity Factor Diversification Benefits

How diversifying are different equity factors within and across country stock markets? In his January 2016 paper entitled “The Power of Equity Factor Diversification”, Ulrich Carl analyzes diversification properties of six equity factors (market excess return, size, value, momentum, low-beta and quality) across 20 developed stock markets. He defines each factor conventionally as returns to a portfolio that… Keep Reading