Alpha Architect Research Blog

The Newest Alpha Architect Research and Insights


DIY Asset Allocation Weights: October 2016

Alpha Architect Tools DIY Investing Tool
Do-It-Yourself tactical asset allocation weights are posted. Create a free account here if you want to access the site directly. Sign in here if you already have a free account. Strategy Date Domestic Value Domestic Mom Int'l. Value Int'l. Mom ...

Active, Irregular Day in the Stock Market–What Else is New?

Source. LOC.gov
A news article from September 29, 2016 -- 100 years ago, today. The lead article of the Evening Star highlights that there was an "active, irregular day in the stock market." The article is followed by commentary that essentially states ...

Introducing the Global Earnings Announcement Premium

earnings-announcement-premium
How do stock prices react to earnings announcements? Sometimes prices go up, and sometimes they go down. But here is a potentially more interesting question: What is the average performance across all stocks that have an announcement? The question of ...

Predicting Booms and Busts in Low Volatility Strategies

beta-arb
Low volatility funds are some of the best performers in the market these days. As such, they have attracted renewed attention in addition to significant asset flows. (note: a refresher on low volatility investing is here, h.t. Eric Falkenstein). But ...

Why a Stock Market Double Would Not be Weird

stock-market-double-dog
This morning we got a sad note from a famous former hedge fund manager (a friend of the firm who shall remain nameless): What if the [stock] returns are never positive again? Just a question from a deeply scarred former ...

Tactical Asset Allocation: A Practitioner’s Defense of Return Predictability

correlation matrix of predictor variables
The prospect of being able to successfully anticipate and predict future market returns is irresistible to practitioners and academics alike, although success has proven elusive. Many have fallen short while seeking this "holy grail" of investing. For instance, Goyal and ...

How Dumb Money and Smart Money Drive Stock Market Anomalies

2016-08-25 12_20_39-smartdumb18 - Copy.pdf - Adobe Acrobat Pro
Stock market anomalies behave in mysterious ways. Over long periods of time they can provide expected outperformance versus passive indexes, but in the short run they can experience bouts of gut-wrenching underperformance (e.g., value and momentum). What accounts for this ...

From Physics to Finance: Adam Tkaczuk Joins Alpha Architect

2016-09-15-09_50_27
We wanted to formally welcome the newest addition to the Alpha Architect team, Adam Tkaczuk, who joins us as Director of Portfolio Services. Adam started off in physics, transitioning his quantitative skills to assist family offices, Fortune 100 firms and ...

Was the Financial Crisis Really a Valuation Crisis?

2016-09-06 10_52_51-The Non-Credit Crisis.doc [Compatibility Mode] - Microsoft Word (Product Activat
Most people look back at the dot-com bubble and acknowledge valuations were elevated far above historical norms. Investors ignored historically useful fundamentals, such as earnings and book value, and started relying on measures like eyeballs and clicks. Investors really started ...

Do Investment Consultants’ Recommendations Add Value? Nope.

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.
Just got done perusing the latest issue of the Journal of Finance . As is the typical case, 50% of the articles can be read if you have a PhD in math, but the other 50% are readable. Kinda. Here ...

Value investing is quite possibly the worst idea…EVER

value-cheerleader
We believe deeply in the value philosophy as first described by Ben Graham: view stocks as ownership in a firm; buy with a margin of safety; avoid stories; think independently; and so forth. In fact, I was so intellectually stimulated ...

The Expensive Lesson of Closet Indexing: Avoid Low Active Share and High Expenses

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The promise of active investing is compelling: the opportunity to earn higher risk-adjusted returns! And paying a fee to an active manager--who is doing something unique--can make sense. And as we know, the only way to beat a benchmark is ...

Is momentum investing dead? Or is it just painful?

pain
Sometimes even the best evidence-based active investment strategies can create a formidable challenge to investors seeking to exploit them. Case in point -- momentum investing. On the one hand, stock-selection momentum strategies (here is a link to more information) can ...

DIY Asset Allocation Weights: September 2016

Alpha Architect Tools DIY Investing Tool
Do-It-Yourself tactical asset allocation weights are posted. Create a free account here if you want to access the site directly. Sign in here if you already have a free account. Strategy Date Domestic Value Domestic Mom Int'l. Value Int'l. Mom ...

When Academics Disagree on Momentum Investing

momentum echo 1
The academic standard for intermediate-term momentum measurement is "12_2 momentum:" simply sort all stocks based on a stock's total return over the past twelve months, ignoring the last month. (a discussion is here and here) However, a few years ago ...

Time Series Momentum and Volatility Scaling

ts paper
There is a new paper published in the Journal of Financial Markets that digs a bit deeper into the Moskowitz, Ooi, and Pedersen "Time Series Momentum" paper (some background here). The paper is behind a paywall, but luckily there is ...

March for the Fallen. Come Join the Alpha Architect Team!

2016-08-26 14_58_14-March for the Fallen
Looking for a great challenge on a Saturday morning on September 24th? Come join some members of the Alpha Architect team and our tribe of friends/clients when we take part in the “March for the Fallen” on Saturday, September 24, ...

Managed Futures: Understanding a Misunderstood Diversification Tool.

3 - ManFut Crisis Graph
In my two previous blog posts (here and here), I analyze the performance of bonds during really bad months for US stocks (“Crisis Alpha” months), and I analyze the performance of US stocks during really bad months for US bonds ...

Optimizing Mean Variance Optimization

Shrinkage Theory for Portfolio Optimization with Correlated Geometric Brownian
In the 1950s, Harry Markowitz proposed a method to identify the optimal trade-off between risk and return for a portfolio. The theory is broadly termed, "Mean-Variance Optimization (MVO)." Sam Wittig, a Drexel graduate I advised and who did some research ...

Dealing with Delistings: A Critical Aspect for Stock-Selection Research

delisting
Eric Crittenden was recently on Meb Faber's podcast and he tells a compelling story about the perils of survivor bias in backtesting. Eric's story begins when he is an undergraduate working on a project for a quantitative finance course. 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.