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Factor Investing and Trading Costs
Factor investing, and the associated intellectual battles, have raged for decades in academic finance journals. However, now that factor investing has gone mainstream via ETFs, the debate has broader...
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Momentum and Market Anomalies
Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. Initial research on...
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The Mother of All Momentum Research Reports. A Must Read!
J.P. Morgan researchers, Marko Kolanovic and Zhen Wei, produced an incredibly detailed report on all aspects of momentum (one of our favorite topics!) Here is a link to the report 188 pages of pure...
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Value and Momentum Factor Portfolio Construction: Combine, Intersect, or...
Wes asked that I contribute to the ongoing debates regarding the construction of value and momentum portfolios. There are three key research pieces on the topic, all with different viewpoints: Alpha...
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Time Series Momentum (aka Trend-Following): A Good Time for a Refresh
Similar to some better-known factors like size and value, time-series momentum is a factor which has historically demonstrated above-average excess returns. Time-series momentum, also called trend...
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Momentum Everywhere, Including in Factors
Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. In 1997, Mark Carhart,...
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The World’s Longest Multi-Asset Momentum Investing Backtest!
As evidenced by the image below, interest in momentum research has taken off since the original 1993 Jegadeesh and Titman paper: Source: “Two Centuries of Multi-Asset Momentum (Equities, Bonds,...
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The Costs of Implementing Momentum Strategies
There are now hundreds of factors in what John Cochrane famously called the “zoo of factors.” However, there are only a small number that meet the requirements for investment that my co-author, Andrew...
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Are Trend-Following and Time-Series Momentum Research Results Robust?
When it comes to trend following and/or time-series momentum research, we got ya covered! A few places to dig in: Evidence for Long-Term Trend-Following by Alpha Architect World’s Longest...
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The Future for Factor Investing May Be Different Than its Backtested Past
We believe there are cause and effect relationships in the world — and in investing — that hold true over time. Many are common sense and easily observable – like fire creates smoke – while others are...
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The 52 Week High and the Q-Factor Investment Model
In the past, we have examined the following two topics: (1) stock performance & the 52-week high and (2) the investment CAPM. When examining the performance of stocks relative to their respective...
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Trust the Process
As a native Philadelphian and huge basketball fan, I fully agree with the 76ers fan’s rally cry — Trust the Process. Even the players, such as Joel Embiid, have echoed the sentiment of the fans: For...
View ArticlePodcast: Momentum in Theory, Momentum in Practice (Jack)
Here is a link to our podcast on Flirting with Models. Today I am speaking with Jack Vogel, co-CIO of boutique ETF issuer Alpha Architect. I’ve known Jack for some time now and was particularly excited...
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The Best Research Paper Ever Written on Trading Costs
Trading costs are a hot topic these days. The topic has sparked investor attention because of the rise of systematic factor investing strategies available via the ETF structure. It seems as if everyone...
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The Conservative Formula: Quantitative Investing made Easy
The Conservative Formula: Quantitative Investing made Easy Pim van Vliet and David Blitz A version of this paper can be found here. Want to read our summaries of academic finance papers? Check out our...
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Momentum Investing, Like Value Investing, is Simple, but NOT Easy
We’ve covered momentum investing extensively over the years, to include 94 posts, a book on the subject, and numerous discussions on various podcast outlets. There are a few things one notices after...
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Value and Momentum and Risk
Early in the summer, I was on a podcast with Corey Hoffstein discussing momentum investing. During the discussion, Corey asked me a question regarding risk versus mispricing, specific to the momentum...
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How can the Investment CAPM Price Momentum?
“How can a q-theoretic model price momentum?” is a new paper by Robert Novy-Marx and goes right to the heart of an intense debate ongoing in empirical asset pricing — can neoclassic economic models...
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Factor Investing Fact Check: Are Value and Momentum Dead?
The “stock market,” at least as measured via the S&P 500, has been on an epic performance run — especially relative to almost all asset classes. It doesn’t matter whether you look at the other...
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Machine Learning Classification Methods and Factor Investing
In the last post in our machine learning series, we showed how nonlinear regression algos might improve regression forecasting relative to plain vanilla linear regression (i.e., when underlying...
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Value, Momentum & Carry Across Asset Classes
There is a 72% probability of the San Franciso Bay Area getting hit by at least one earthquake of a magnitude of 6.7 or stronger between today and 2043 according to the United States Geological...
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Momentum Factor Investing in Russia
Momentum Factor Investing in 19th Century Imperial Russia William Goetzmann and Siman Huang JFE, forthcoming. A version of this paper can be found here. What are the research questions? Momentum is...
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The Momentum of News
Since the development of the capital asset pricing model (CAPM) in the 1960s, hundreds of anomalies (what John Cochrane famously called a “zoo of new factors”) have been uncovered in the cross-section...
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Is factor momentum really everywhere?
Factor Momentum Everywhere Tarun Gupta and Bryan Kelly 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...
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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. What are...
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Factor Investing Research On Steroids
Factor Premia and Factor Timing: A Century of Evidence Antti Ilmanen, Ronen Israel, Toby Moskowitz, Ashwin Thapar, and Franklin Wang Working paper A version of this paper can be found here What are...
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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,...
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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,...
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Purchasing Managers’ Index (PMI) and Factor Performance
A physicist, a chemist, and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The physicist says, “Let’s smash the can open with a rock”. The chemist says,...
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Using Firm Characteristics to Enhance Momentum Strategies
Research into the momentum factor continues to demonstrate its persistence and pervasiveness, including across factors. Recent papers have focused on trying to identify ways to improve the explanatory...
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Are Value, Carry and Momentum Regime Dependent?
Over the past decade academics and practitioners alike have argued that multi-factor portfolios offer significant benefits to investors looking for enhanced and more diversified solutions. Among the...
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Forbidden Knowledge: Long-Only Academic Factors are Also Cool
When Equity Factors Drop Their Shorts David Blitz, Guido Baltussen, and Pim van Vliet Working Paper A version of this paper can be found here Want to read our summaries of academic finance papers?...
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Protecting the Downside of Trend When It Is Not Your Friend : Part 1
Protecting the Downside of Trend When It Is Not Your Friend Kun Yang, Edward Qian, and Bran Belton Journal of Portfolio Management A version of this paper can be found here Want to read our summaries...
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Protecting the Downside of Trend When It Is Not Your Friend: Part 2/2
Protecting the Downside of Trend When It Is Not Your Friend Kun Yang, Edward Qian, and Bran Belton Journal of Portfolio Management A version of this paper can be found here Want to read our summaries...
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Visualization Sector Trends with R Code
Welcome to a year-end installment of Reproducible Finance with R, a series posts that will be a little bit different from the norm on Alpha Architect (see here for my last post). We will search for...
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How to Turn Cross-Sectional into Time-Series Momentum (and be home in time...
Cross-Sectional and Time-Series Tests of Return Predictability: What Is the Difference? Amit Goyal and Narasimhan JegadeeshA version of this paper can be found hereWant to read our summaries of...
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Low Volatility-Momentum Factor Investing Portfolios
INTRODUCTION Factor investing is hard and some factors make it harder than others. A value strategy results in a portfolio of stocks that exhibit temporary or structural issues and are usually rated...
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Factor Investing Update: An Analysis of 2019 International Factor Returns
Last week I summarized the 2019 factor performance for U.S. stocks. A natural follow-up question was the following–“what about International stocks?” A great question. So below I dig into the 2019...
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Global Low Volatility and Momentum Factor Investing Portfolios
A Springbok antelope can reach a top speed of 55 miles per hour in the African savanna, whereas the fastest human manages barely half that speed and only for a few meters. In a short race, we are left...
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Low Volatility-Momentum Versus Value-Momentum Factor Portfolios
If an investor would state today that in ten or twenty years most portfolios would include an allocation to cryptocurrencies, they would likely be laughed at. However, a similar response would have...
View ArticleCompound Your Knowledge Ep 27: Value, Momentum, and Low Volatility
In this video, we examine two articles highlighted on our site. The first article, written by Larry Swedroe, examines the Value and Momentum performance over the past two years ( highlighting great...
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An Empirical Challenge for Trend-Following
Editor’s Note: For the foreseeable future, we’ll be focusing on research that explores investment strategies that are believed to help investors manage risk and diversify their portfolios. Time Series...
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Cheap vs. Expensive Factors: Does Valuation Matter for Future Returns?
Tesla (TSLA) breached the $100 billion market capitalization in January 2020 and became the most valuable car manufacturer globally. However, valuing the company is challenging given the growth...
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Diversifying Your Value Portfolio? Quality Works, but Have You Heard of...
What if your portfolio was only based on one idea? Something like “stocks always go up” or “value always beats growth.” You may be learning a humbling lesson right now that Mr. Market has taught us...
View ArticleCombining Momentum with Long-Term Reversal
Two of most documented anomalies in the asset pricing literature are the momentum effect and the long-term reversal effect. Momentum is typically defined as the last 12 months of returns excluding the...
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Left Tail Risk and Left Tail Momentum
The positive trade-off between risk and expected return is the most fundamental concept in financial economics. Most investors are risk-averse. In order to hold higher-risk securities, they demand...
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Fundamental Momentum, the Carry Trade, and Currency Returns
Momentum in prices is the tendency of assets that have performed well recently (such as over the prior year) to outperform assets in the same asset class that have performed poorly over the prior...
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Cross-Asset Signals and Time-Series Momentum
In their paper “Time Series Momentum,” published in the May 2012 issue of the Journal of Financial Economics, Tobias Moskowitz, Yao Hua Ooi and Lasse Pedersen documented significant time-series...
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Accruals and Momentum and Their Implications for Factor Investors
The price momentum and accruals (the difference between accounting earnings and cash flows—adjustments made for revenue that has been earned but not received, and costs that have been incurred but not...
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Trend Following Research: Breaking Bad Trends
Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. Initial research on...
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