Portfolio-based risk factors are identified through diversified, zero-cost, long/short portfolios that may link stock returns to systematic risk. There is a substantial amount of evidence in the academic literature that some portfolio-based risk factors explain well the cross …Read More.
It has been well-documented that profitability is positively correlated with stock returns. Firms with higher profits earn higher returns. The profitability factor has also been shown to eliminate most of the well-known anomalies that can represent problems for …Read More.
I often hear criticisms from the financial media and some professional advisors about the use of bond ladders. Whenever the criticism comes from professional advisors, however, I’ve noticed it generally involves firms that use only bond mutual funds …Read More.
There’s extensive literature documenting that value stocks (the stocks of companies with low prices relative to a valuation metric, such as earnings, book value, cash flow or sales) possess a strong, persistent and pervasive tendency to outperform growth …Read More.
Defined benefit (DB) pension funds promise retirement benefits dependent upon an employee’s earnings history, tenure of service and age. When a DB pension fund is underfunded (when asset values are lower than the value of their liabilities, or …Read More.
As with all financial assets, real estate investment trust (REIT) valuations should equal the discounted present value of expected future cash flows. REIT prices thus reflect the growth potential of cash flow (rents, expenses) and/or the time variation …Read More.
The investment policies of state and local government pension systems have shifted markedly in recent years toward alternative investment classes, such as private equity, real estate and venture capital. For example, as of January 2016, the California Public …Read More.
It’s been well-documented that, in equity investing, assets have earned premiums because they are exposed to the risks of a certain factor. Given that the literature provides us with a veritable factor “zoo” (there are more than 300), …Read More.
Robert Novy-Marx’s 2012 paper, “The Other Side of Value: The Gross Profitability Premium,” not only provided investors with new insights into the cross section of stock returns, it helped explain Warren Buffett’s superior performance—he bought value companies with …Read More.
The world of finance and asset pricing used to be fairly simple. At first, there was just the single-factor capital asset pricing model, with market risk (beta) as the sole factor to explain the differences in returns of …Read More.
