For about three decades, the working asset pricing model was the capital asset pricing model (CAPM), with beta—specifically market beta—being its sole factor. Then, in 1993, the Fama-French three-factor model—which added size and value—replaced the CAPM as the …Read More.
What do the following investments have in common? Options Covered calls Collateralized mortgage obligations Non-traded REITs Master limited partnerships Variable annuities Equity-indexed annuities Hedge funds Principal protected notes Private equity Here’s the answer: They are all complex investments. …Read More.
One of the interesting puzzles in finance is that stocks with greater idiosyncratic volatility (IVOL) have produced lower returns. This is an anomaly, because idiosyncratic volatility is viewed as a risk factor—greater volatility should be rewarded with higher, …Read More.
Haim Mozes and John Launny Steffens, authors of the study “Getting More Value Out of the Value Factor,” which was published in The Journal of Investing’s Winter 2015 issue, have attempted to create a model that can accurately …Read More.
One of the questions I’m most often asked by reporters covering finance is: “What are the biggest risks facing investors?” My usual response is that the biggest risk confronting most investors is staring right back at them when …Read More.
In life, there are certain nonnegotiables we simply must have. Think food, water and shelter for starters. Nobody will ask, “Is it worth it to eat?” It’s just something you do to stay alive. But deciding what to …Read More.
The Shiller cyclically adjusted (for inflation) price-to-earnings ratio—referred to as the CAPE 10 because it averages the last 10 years’ earnings and adjusts them for inflation—is a metric used by many to determine whether the market is undervalued, …Read More.
There are many anomalies in investing. It wasn’t easy to isolate the three biggest ones, but here are my choices: 1. You love Warren Buffett, but ignore his advice. Warren Buffett has rightfully been called “the greatest investor …Read More.
You’ve heard of the American dream, right? The American dream was this machine we built to get rid of uncertainty and create security. It’s the white picket fence, the job and the minivan. You watch Dan Rather and …Read More.
Over the past decade, investors have continued to pour new assets into hedge funds. Total hedge fund assets under management are now greater than $2.6 trillion, and the number of hedge funds continues to grow (current estimates put …Read More.
The data is irrefutable. There’s a direct correlation between low fees and higher expected returns. Two recent studies from Morningstar bring this point home in a powerful way. The significance of low fees Read the rest of the …Read More.
You’ve heard of the American dream, right? The American dream was this machine we built to get rid of uncertainty and create security. It’s the white picket fence, the job and the minivan. You watch Dan Rather and …Read More.
Classical economic theory suggests that free markets, in which individuals each act according to their self-interest, yield the best of all possible worlds. All one has to do is look around at places like Cuba and North Korea …Read More.
It’s logical to believe that corporate managers have a preference for issuing equity at times they perceive their firm’s stock price is overvalued or high relative to some benchmark (such as price-to-earnings ratio or book-to-market ratio). The academic …Read More.
Earlier this week, we discussed a March 2016 study by Rodney Boehme, Veljko Fotak and Anthony May, “Crash Risk and Seasoned Equity Offerings,” which provided evidence that companies will tend to withhold (and accumulate) bad news for an …Read More.
