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513 Research Articles

Understanding the Variation in Equity Factor Returns

What is the best way to understand and anticipate variations in equity factor returns? Past research emphasizes factor return connections to business cycle variables or measures of investor sentiment (with little success). In his September 2021 paper entitled “The Quant Cycle”, David Blitz analyzes factor returns themselves to understand their variations, arguing that behavioral rather… 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

Good and Bad High-fee Mutual Funds

Should investors shun mutual funds with high fees? In their February 2017 paper entitled “Cheaper is Not Better: On the Superior Performance of High-Fee Mutual Funds”, Jinfei Sheng, Mikhail Simutin and Terry Zhang re-examine the conventionally accepted negative relationship between expense ratio and future net performance of actively managed equity mutual funds. They measure fund performance as alpha from each… Keep Reading

Which Equity Factors Are Predictable?

Are the returns of factors widely used to predict the cross-section of stock returns themselves predictable? In the January 2016 draft of his paper entitled “Equity Factor Predictability”, Ulrich Carl analyzes predictability of market, size (market capitalization), value (book-to-market ratio), momentum (returns from 12 months ago to one month ago), low beta (betting against beta) and quality… Keep Reading

Four-factor Model of Corporate Bond Returns

Do factor models predict returns for corporate bonds as they do for stocks? In their October 2014 paper entitled “Factor Investing in the Corporate Bond Market”, Patrick Houweling and Jeroen van Zundert develop and test a four-factor (size, low-risk, value and momentum) model of future corporate bond returns. Each month for investment grade and high yield bond market segments… Keep Reading

Variation in the Number of Significant Equity Factors

Does the number of factors significantly predicting next-month stock returns vary substantially over time? If so, what accounts for the variation? In their December 2021 paper entitled “Time Series Variation in the Factor Zoo”, Hendrik Bessembinder, Aaron Burt and Christopher Hrdlicka investigate time variation in the statistical significance of 205 previously identified equity factors before,… Keep Reading

Economic Uncertainty as a Stock Return Factor

Do specific stocks react differently to economic uncertainty? In their December 2016 paper entitled “Is Economic Uncertainty Priced in the Cross-Section of Stock Returns?”, Turan Bali, Stephen Brown and Yi Tang investigate the role of economic uncertainty in the cross-sectional pricing of individual stocks. They measure economic uncertainty monthly as an aggregation of the volatilities of the unpredictable components… Keep Reading

Excluding Bad Stock Factor Exposures

The many factor-based indexes and exchange-traded funds (ETFs) that track them now available enable investors to construct multi-factor portfolios piecemeal. Is such piecemeal construction suboptimal? In their July 2018 paper entitled “The Characteristics of Factor Investing”, David Blitz and Milan Vidojevic apply a multi-factor expected return linear regression model to explore behaviors of long-only factor portfolios. They consider six factors: value-weighted… Keep Reading

Technical Trading of Equity Factor Premiums

Do technical trend trading/intrinsic momentum strategies work for widely used equity factors such as size (small minus big market capitalizations), value (high minus low book-to-market ratios), profitability (robust minus weak), investment (conservative minus aggressive) and momentum (winners minus losers)? In their January 2018 paper entitled “What Goes up Must Not Come Down – Time Series… Keep Reading

Stock Factor/Anomaly Momentum

Do published stock factors exhibit performance streaks exploitable via intrinsic (absolute, or time series) and relative (cross-sectional) momentum? In the March 2021 revision of their paper entitled “Factor Momentum and the Momentum Factor”, Sina Ehsani and Juhani Linnainmaa investigate stock factor portfolio monthly time series and cross-sectional momentum. They consider 15 factors for U.S. stocks… Keep Reading