Investing Research Articles

Do published commodity futures factors exhibit exploitable momentum? In their December 2023 paper entitled “Factor Momentum in Commodity Futures Markets”, Yiyan Qian, Xiaoquan Liu and Ying Jiang examine factor momentum in fully collateralized nearest-rolled contracts of various commodity futures. They consider ten factors: Market –S&P Goldman Sachs Commodity Index.  Basis -slope of futures term structure…. Keep Reading

Does the rate of change of return momentum (return acceleration) usefully predict stock returns? In their August 2015 paper entitled “The Acceleration Effect and Gamma Factor in Asset Pricing”, Diego Ardila-Alvarez, Zalan Forro and Didier Sornette compare the effectiveness of return acceleration (difference between returns for the last six months and the preceding six months) and return momentum as stock return… Keep Reading

The conventional approach to measuring equity factor returns is via hedge portfolios that are long (short) the equal-weighted or value-weighted extreme highest (lowest) fifth or tenth of stocks sorted by some firm/stock characteristic. Is there a better way? In their August 2023 paper entitled “Power Sorting”, Anastasios Kagkadis, Harald Lohre, Ingmar Nolte, Sandra Nolte and… Keep Reading

Is the recent Fama-French augmentation of their classic three-factor (market, size, book-to-market) model of stock returns with profitability and investment factors a major advance? In their November 2016 paper entitled “Five Concerns with the Five-Factor Model”, David Blitz,  Matthias Hanauer, Milan Vidojevic and Pim van Vliet identify five concerns regarding the five-factor model. Based on empirical and theoretical (rationale)… Keep Reading

How have value, quality, low-volatility and momentum equity factors, and combinations of these factors, performed in recent years. In their October 2020 paper entitled “Equity Factor Investing: Historical Perspective of Recent Performance”, Benoit Bellone, Thomas Heckel, François Soupé and Raul Leote de Carvalho review and put into context recent performances of these these factors/combinations as… Keep Reading

Why do portfolios formed from the principal components of many long-short stock return factors from two recent studies, one covering 207 factors and the other 153 factors (with overlap 97), have such different out-of-sample gross Sharpe ratios? In their November 2022 paper entitled “Factor Returns and Out-of-Sample Alphas: Factor Construction Matters”, Hendrik Bessembinder, Aaron Burt… Keep Reading

Can causal discovery algorithms (which look beyond simple statistical association, and instead consider all available data and allow for lead-lag relationships) make economically meaningful contributions to equity investing? In their December 2023 paper entitled “Causal Network Representations in Factor Investing”, Clint Howard, Harald Lohre and Sebastiaan Mudde assess the economic value of a representative score-based… Keep Reading

Is it possible that all the 300+ published factors that predict stock returns (such as size, value, profitability, investment, momentum…) derive from data snooping? In his October 2018 paper entitled “The Limits of Data Mining: A Thought Experiment”, Andrew Chen estimates how much data snooping would be required to “discover” all these factors by pure luck. Specifically,… Keep Reading

Can diversification across economic states improve portfolio performance? In their November 2020 paper entitled “Investing Through a Macro Factor Lens”, Harald Lohre, Robert Hixon, Jay Raol, Alexander Swade, Hua Tao and Scott Wolle study interactions between three economic “factors” (growth, defensive/U.S. Treasuries and inflation) and portfolio building blocks (asset classes and conventional factor portfolios). Their… Keep Reading

Are gains from tax-loss harvesting, the systematic taking of capital losses to offset capital gains, additive to or subtractive from premiums from portfolio tilts toward common factors such as value, size, momentum and volatility (smart beta)? In their October 2014 paper entitled “Factor Tilts after Tax”, Lisa Goldberg and Ran Leshem look at the effects on portfolio performance… Keep Reading