If Factor Returns Are Predictable, Why Is There An Investor Return Gap?Guest Post
- A large body of literature holds that the equity market premium is countercyclical and, using valuation ratios, is predictable.
- The investor return gap persists, despite strong evidence that factor performance is mean reverting, because investors use the manager selection process for alpha timing.
- Contrarian strategies enable stalwart investors to overcome the institutionalized behavioral biases that depress long-term returns.
Substantial evidence supports factor return predictability, yet evidence also indicates that investors are not reaping, to the greatest extent possible, the excess returns commensurate with such . . .
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