Alpha Architect Research Blog

The Newest Alpha Architect Research and Insights

How to use the Fama French Model

The CAPM is prolific, but doesn't appear to work! (Note: see here for our epic post on the history of factor investing.) For example, in the figures below I've plotted the Fama-French 25 (portfolios ranked on size and book-to-market) against ...

Stop Using the Altman-Z Score.

Predicting Financial Distress and the Performance of Distressed Stocks
  • John Y. Campbell, Jens Hilscher, and Jan Szilagyi
  • A version of the paper  can be found here.
Abstract: In this paper we consider the measurement and pricing of distress ...

Juicing up the Accrual Anomaly

Percent Accruals
  • Nader Hafzalla, Russell Lundholm, and Matt Van Winkle
  • A version of the paper  can be found here.
  • Live implementation data can be found at Empirical Finance Data (Expected Q2 2011)
Abstract: We document how the effectiveness of ...

Magic Formula and Small Caps–The Missing Link?

A reader recently commented in response to our study on the Magic Formula, which questions the 31% CAGR performance of the strategy over the 1988--2004 time period (comment posted below). The reason you are coming up with numbers that are ...

Taxes are more important than alpha.

Paying taxes is my least favorite topic. Figuring out how to not pay taxes is my favorite topic. Before I continue, if you want to read a detailed study on the subject, see the following: If you want to read ...

Mission Impossible: beating the market over long periods of time

I've been thinking about "extreme" returns recently. After all, who wouldn't mind earning a few extra bucks in the stock market? We all hear about quantitative strategies that are supposed to earn us 20%, 25%, or even 30%+ returns over ...

Textual Analysis and Trading Strategies

When is a Liability not a Liability? Textual Analysis, Dictionaries, and 10-Ks.
  • Tim Loughran and Bill McDonald
  • A published version of the paper  can be found here.
  • The authors keeps a version of the paper here.
  • The authors keep ...

More Magic Formula Analysis

As a professor by day, I spend a lot of time doing research and studying financial data. Recently, my research assistant and I have been digging deeper into the magic formula. We simply can't figure out why the results posted ...

Follow the Short-Sell Demand

Supply and Demand Shifts in the Shorting Market
  • Lauren Cohen, Karl B. Diether and Chirstopher J. Malloy
  • A version of the paper  can be found here.
  • This write-up was adapted from a research report by Haiping Huang, Lin Xiong, ...

How “Magic” is Magic Formula Investing?

The underlying concept of magic formula investing is a genius marketing platform, but it is unclear how "magic" the formula actually is--examine 'cheapness,' examine 'quality,' combine the analysis and buy the best value (get the most bang for your buck). The ...

Performance figures contained herein are hypothetical, unaudited and prepared by Alpha Architect, LLC; hypothetical results are intended for illustrative purposes only. Past performance is not indicative of future results, which may vary. There is a risk of substantial loss associated with trading stocks, commodities, futures, options and other financial instruments. Please click Full Disclaimer for additional disclosures.