Momentum, Quality, And R Code

Welcome to the first installment of Reproducible Finance by way of Alpha Architect.  For the uninitiated, this series is a bit different than the other stuff on AA – we’ll focus on writing clean, reproducible code, mostly R (but some python too), applied to different ideas from the world [...]

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Enhancing The Performance Of Momentum Strategies

In “Your Complete Guide to Factor-Based Investing,” Andy Berkin and I presented the evidence demonstrating that momentum, both cross-sectional (or relative) momentum and time-series (or absolute, trend following) momentum, not only increases the explanatory power of asset pricing models while providing (historically) a premium, but that the premium has [...]

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Debunking Myths About Stock Buybacks

Buyback Derangement Syndrome Clifford Asness, Todd Hazelkorn, And Scott Richardson Journal of Portfolio Management A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category Q2 hedge fund letters, conference, scoops etc What are the research questions? The authors present 4 MYTHs regarding [...]

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The Cross-Section Of Emerging Market Stock Returns

Matthias x. Hanauer, Jochim G. Lauterbach A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category. Q1 hedge fund letters, conference, scoops etc What are the Research Questions? As a non-academic finance person, I was never really exposed to academic research until [...]

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Does Leverage Explain The Investment Premium?

Research demonstrates that the investment factor has explanatory power for the cross-section of stock returns, with high-investment firms tending to underperform low-investment firms. For example, Kewei Hou, Chen Xue and Lu Zhang, authors of the 2015 paper “Digesting Anomalies: An Investment Approach,” proposed replacing the Fama-French three-factor (market beta, [...]

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Value Factor Valuations Over Time: US And Developed

We built a simple tool recently to review so-called value spreads over time. (1) Q1 hedge fund letters, conference, scoops etc This tool maps out the median valuations for the top decile and bottom decile “cheap stock” portfolios (as measured by EBIT/TEV). Why might this be useful? This tool allows one to identify the [...]

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Things To Consider For ESG Portfolio Construction

A Guide to ESG Portfolio Construction Michael Branch, Lisa R. Goldberg and Pete Hand Journal of Portfolio Management A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category Q1 hedge fund letters, conference, scoops etc What are the research questions? As with [...]

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Volatility Anomalies: IVOL And Vol-Of-Vol

Two of the more interesting puzzles in finance are related to volatility—stocks with greater idiosyncratic volatility (IVOL) have produced lower returns and stocks with high uncertainty about risk, as measured by the volatility of expected volatility (vol-of-vol), underperform stocks with low uncertainty. These are anomalies because greater risk should [...]

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Volatility Targeting Improves Risk-Adjusted Returns

There’s a large body of research, including the 2017 study “Tail Risk Mitigation with Managed Volatility Strategies” by Anna Dreyer and Stefan Hubrich, that demonstrates that, while past returns do not predict future returns, past volatility largely predicts future near-term volatility—volatility is persistent (it clusters). High (low) volatility over [...]

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Structuring Lower Risk Opportunity Zone Investments

The tax benefits of the new Opportunity Zone program are potentially phenomenal. However, when you dig into the details of the program you quickly realize that many of the investment options are typically higher-risk and pretty limited (new hotels and greenfield real estate developments). Q1 hedge fund letters, conference, scoops [...]

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Short Selling + Insider Selling = Profitable Strategy?

When Short Sellers and Corporate Insiders Agree on Stock Pricing Q1 hedge fund letters, conference, scoops etc Chune Young Chung, Hong Kee Sul, and Kainan Wang Journal of Portfolio Management A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category mohamed_hassan [...]

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The Folly Of Hiring Winners And Firing Losers

One of the mistakes that prevent investors from achieving their goals is that when it comes to evaluating investments and investment strategies most think that three years is a long time, five years a very long time, and 10 years an eternity. This is true of both individuals and [...]

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A Remarkable New Factor: The Cash Conversion Cycle

The Cash Conversion Cycle Spread Baolian Wang JFE, forthcoming. A version of this paper can be found here. Old discussions here and here. h.t. M. Mauboussin Q1 hedge fund letters, conference, scoops etc pasja1000 / Pixabay What are the research questions? The barrier to entry into the factor zoo has increased exponentially. Prof. Harvey (now working with RAFI) [...]

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Distracted Institutional Investors

Distracted Institutional Investors Daniel Schmidt Journal of Financial and Quantitative Analysis, forthcoming A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category Q1 hedge fund letters, conference, scoops etc mohamed_hassan / Pixabay What are the Research Questions? This paper studies how limited attention affects the [...]

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Investment Strategy In An Uncertain World

In 1921, University of Chicago Professor Frank Knight wrote the classic book “Risk, Uncertainty, and Profit.” An article from the Library of Economics and Liberty described Knight’s definitions of risk and uncertainty as follows: Q1 hedge fund letters, conference, scoops etc rawpixel / Pixabay Risk is present when future events occur with [...]

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Day Of The Week Matters For Some Anomalies

Day of the Week and the Cross-Section of Returns Justin Birru Journal of Financial Economics, forthcoming A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category Q4 hedge fund letters, conference, scoops etc mohamed_hassan / Pixabay What are the Research Questions? According to psychology literature, [...]

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Industry Insiders Can Outperform The Market

Industry Familiarity and Trading: Evidence from the Personal Portfolios of Industry Insiders Itzhak Ben-David, Justin Birru and Andrea Rossi Journal of Financial Economics, forthcoming A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category whitesession / Pixabay What are the Research Questions? Most of the [...]

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How To Pass The CFA Level 1 Exam

I recently received a question from Steve Sivak of Innovate Wealth: How do I pass the CFA Level 1 Exam? When I sat down to type my response, it turned into a lot more than I was expecting. Below are the thoughts I shared with him. I don’t have any breakthrough secrets [...]

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Why The Size Premium Should Persist

As the chief research officer for Buckingham Strategic Wealth and The BAM Alliance, I’m often asked, after any asset class or factor experiences a period of poor performance, if the historical outperformance of stocks with that characteristic has disappeared because the premium has become well known and arbitraged away. Q4 [...]

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Factor Investing In Practice

Factor Investing from Concept to Implementation Eduard van Gelderen, Joop Huij, and Georgi Kyosev Working paper A version of this paper can be found here(1) Q4 hedge fund letters, conference, scoops etc fill / Pixabay What are the research questions? There is a substantial debate on the topic of factor investing and whether or not the “backtested” [...]

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Sector Business Cycle Analysis

There are different investment approaches to identify sector winners and losers, such as price momentum strategies, top down approach based on specific macroeconomic indicators or bottom-up approaches to identify sectors with improving fundamentals. One widely used approach is business cycle analysis. Since economic cycles usually exhibit characteristics that impact [...]

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