Study Raises Questions About Factor Significance

A new study has found that most of the market anomalies academics have identified are not statistically significant, says a recent Wall Street Journal article. After analyzing 447 anomalies (the biggest test of its kind conducted so far), the researchers concluded that more than eight out of ten “vanish when rigorous tests are applied,” according to the article. In their report, they warn that academics may manipulate statistics to come up with compelling findings, a… Read More

AQR’s Asness on Fama, Momentum Investing and More

Clifford Asness, Managing and Founding Principle of AQR, writes in his “Cliff’s Perspective” blog about Nobel Laureate and Professor Eugene Fama’s views on momentum investing. Asness is a believer in momentum and, as he notes, wrote a dissertation on it under the supervision of Fama. Asness notes that “the long-term success of the momentum factor seems to be a challenge to many observers,” including Fama. Commenting on a recent interview with Fama, Asness notes that… Read More

The Diversification Debate

In addition to the question of how many stocks they should own, another similar question many investors ask is how many funds or asset classes they should own. In a recent Financial Times column, David Stevenson offers some interesting data on the topic, as well as some comments from top strategists. The “proper answer” to those questions, Stevenson says, is to follow the modern portfolio theory developed by Harry Markowitz, which “suggests that you look… Read More

Hulbert: Small-Cap Value Stocks May Be Ripe for Impressive Gains

Small-cap value stocks are risky but they also historically produce jaw-dropping gains at the begining of bull markets, Mark Hulbert writes in the New York Times. Referencing academic research performed by professors Eugene Fama (University of Chicago) and Kenneth French (Dartmouth), Hulbert writes that small-cap value stocks (stocks with the lowest price/book ratios) “gained 17.1 percent, on average, in the first three months following the 13 market bottoms since 1969, equivalent to an annualized rate… Read More