Alpha Architect Research Blog

The Newest Alpha Architect Research and Insights


Backtesting strategies based on multiple signals — Beware of Overfitting Bias!

Backtesting strategies based on multiple signals
One of the dangers of being a quantitative investor is that when you see patterns in historical data you might wrongly assume they will repeat. Put another way, you might believe an effect is driven by a genuine relationship, when ...

My Chat with Barry Ritholz

bberg
Last week I had the opportunity to sit down with Barry Ritholtz @ http://www.ritholtzwealth.com/. Barry hosts my favorite business/investing related podcast, Masters in Business @ Bloomberg (Although Preston and Stig's podcast is a close second!) Barry and I have known ...

Stock Market Anomalies and Baseball Cards

ipo and rookie cards
I still have a Ken Griffey Jr. Rookie Card. To be honest, I don't even know where the thing is, but I hope it is it worth a ton of money at this point (although I doubt it). So disclaimer ...

Can You Spot the Closet-Indexer? Introducing Visual Active Share

2016-06-23 13_22_14-2016-WB-2504 Alpha Architect Can you spot the closet indexer
Readers, We're working on some internal tools to help investors make more informed decisions. The primary challenge that investors face is understanding what they are actually buying versus what they are being sold. Active share and high level portfolio statistics ...

Leveraging Persuasion Science to Nudge Investors in a Better Direction

choice architect
Making choices can be difficult, but possible alternatives can be arranged in a way that facilitates effective decision-making. This is the idea behind “choice architecture,” an concept that is explored in the book, “Nudge,” by Richard Thaler and Cass Sunstein ...

Digging Deeper into Adaptive Asset Allocation

book cover
In some ways, investing is simple. After all, we all want the same things. High returns. Low volatility. Small max drawdowns. Unfortunately, it's very difficult--if not impossible--to have your cake and eat it too. There are always tradeoffs among these ...

Invert, always invert: Will Stocks Diversify Bond Investments in the Future?

50 Worst Bond Months
My last post, "Will bonds deliver crisis alpha in the next crisis?," created quite a stir on the blogosphere. The underlying assumption of the analysis is that stocks are a core component of a portfolio and bonds are included to ...

Fascinating insights from ETF industry veteran Eric Balchunas

etf industry maze
In the world of ETFs, while there are many people who claim a deep understanding of ETFs, there are few who actually possess it. Eric Balchunas is an exception. Eric has a deep bench of experience in the ETF industry ...

Want to Know the Secret to Inefficient Prices? Lazy Prices.

Lazy prices
How do you handle repetitive tasks? If you're like most people, you work through a task in a variety of ways, find the most efficient approach, and then stick to that workflow. Consider email address autofill, automatic payment plans, or ...

Will Bonds Deliver Crisis Alpha in the Next Crisis?

bond crisis alpha
Bonds are often viewed as being great diversifiers due to the perception that they perform well during tough times for stocks. Historically this has been a true statement. But will it continue? Our answer: unclear. Most investors use correlation to ...

Book Review — Family, Inc.: Using Business Principles to Maximize Your Family’s Wealth

human capital is the largest asset
For many people, navigating the road to long-term family wealth creation can be a challenging process. This is because families, especially young ones, may be thinking more about minivans and mortgages than about asset allocation and retirement planning. Into this ...

Bubble Investing: Learning from History

We just wrote a piece for Forbes on financial bubbles in the lab. Punchline: investors initially underreact to fundamentals, then they overreact, and eventually prices correct. But how common are crashes? Ben has some interesting thoughts, but the results are ...

DIY ASSET ALLOCATION WEIGHTS: June 2016

Robust Asset Allocation weights_June 2016
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. Exposure Highlights: Full exposure to domestic equities. Full exposure to ...

Want to spot a true Value Investor? Look for horrible recent performance

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.
Harry Houdini is perhaps the best-known magician of all time, gaining notoriety in the early 20th century through his daring escape acts. Houdini escaped from straight jackets while suspended from chains, fought his way out of submerged mailbags, and performed ...

BARRACKS CASH: A Military Guide to Better Saving and Spending

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Foreword: Mark Cowett is an interesting character. He is a University of Chicago undergraduate with a BA in History as well as an MBA from Yale University -- so he obviously has some brains. Aside from brains, he has some ...

Congratulations to our new CFA® Charter Holder — Tao Wang!

As many of our readers know, a CFA® designation represents a lot of blood, sweat, and tears expended on understanding the nuance of finance at both a technical and theoretical level. Our long-time friend, partner, and quant extraordinaire -- Tao ...

An Epic Historical Performance Streak: Domestic 60/40

60_40 is hot
US-centric 60/40 portfolios have knocked it out of the park since 2010. Nearly a 10 percent compound annual growth rate, less than a 7 percent worst drawdown, and a Sharpe ratio of 1.33 (see below). This is a 6 -year ...

Book Review — Entrepreneurs in the Midst: Stories from Founders, Creators, and Builders

Entrepreneurs in the Midst_ Stories from Founders, Creators, and Builders
When considering the prospects for an early-stage business, it’s hard to know the right ingredients for success. You might assess the firm's business model, and value proposition. You might look for diverse traits in the founders, such as passion, vision, ...

Behavioral Finance Strikes Again: Contrast Effects in Financial Markets

tough act to follow
At this point, even hard core efficient market fans will likely admit that behavior can influence investment decisions. Humans aren't robots. However, just because some investors exhibit bad behavior that doesn't mean they can influence prices. As the story goes, ...

A Stunning New Finding: Return Seasonalities are Everywhere

juhani part 1
We've discussed return seasonalities in the past, especially as they pertain to our approach to momentum. Turns out seasonality effects aren't confined to momentum -- they are literally everywhere and they are incredibly strong. This paper will blow your mind ...

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.