Journal ArticleDOI
How Can 'Smart Beta' Go Horribly Wrong?
TLDR
In this article, the authors predict a smart beta crash as a consequence of the soaring popularity of factor-tilt strategies, and the reasonable probability of such a crash is shown.Abstract:
Factor returns, net of changes in valuation levels, are much lower than recent performance suggests. Value-add can be structural, and thus reliably repeatable, or situational—a product of rising valuations—likely neither sustainable nor repeatable. Many investors are performance chasers who in pushing prices higher create valuation levels that inflate past performance, reduce potential future performance, and amplify the risk of mean reversion to historical valuation norms. We foresee the reasonable probability of a smart beta crash as a consequence of the soaring popularity of factor-tilt strategies.read more
Citations
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Journal ArticleDOI
Fact and Fiction about Low-Risk Investing
TL;DR: Low-risk investing within equities and other asset classes has received a lot of attention over the past decade as discussed by the authors, and an intensive academic debate has spurred, and been spurred by, the growing market for low-risk strategies.
Journal ArticleDOI
The Smart Beta Mirage
TL;DR: In this paper, the authors document and explain the sharp performance deterioration of smart beta in- dexes after the corresponding smart beta ETFs are launched for investment, and find strong evidence of data overexploitation in constructing smart beta indexes, which helps ETFs attract flows as investors respond positively to stellar backtests.
Posted Content
A novel dynamic asset allocation system using Feature Saliency Hidden Markov models for smart beta investing
TL;DR: In this article, a dynamic asset allocation system using Hidden Markov Models (HMMs) is proposed to address cyclicality and underperformance of smart-beta strategies, and the resulting portfolios show an improvement in risk-adjusted returns.
Dissertation
Mispricing at the Oslo stock exchange : how suitable are the mispricing models of Stambaugh and Yuan for describing norwegian stock returns?
TL;DR: In this article, the suitability of the three and four-factor mispricing models of Stambaugh and Yuan (2017) in describing Norwegian stock returns in the period between 1998 and 2018 was assessed.
Journal ArticleDOI
Rethinking Asset Bubbles: Reflections for the Age of Institutional Investing
Brad Jones,Brad Jones +1 more
TL;DR: The authors suggests that asset booms, bubbles and busts continue posing a threat to financial stability despite financial markets becoming increasingly informationally efficient, complete, and heavily influenced by sophisticated (presumably rational) investors.
References
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Journal ArticleDOI
Common risk factors in the returns on stocks and bonds
Eugene F. Fama,Kenneth R. French +1 more
TL;DR: In this article, the authors identify five common risk factors in the returns on stocks and bonds, including three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity.
Journal ArticleDOI
Illiquidity and Stock Returns: Cross-Section and Time-Series Effects
TL;DR: In this paper, the effects of stock illiquidity on stock return have been investigated and it was shown that expected market illiquidities positively affects ex ante stock excess return (usually called risk premium) over time.
Journal ArticleDOI
Investment performance of common stocks in relation to their price-earnings ratios: a test of the efficient market hypothesis
TL;DR: In this article, the authors determine empirically whether the investment performance of common stocks is related to their P/E ratios, and they find that returns on stocks with low PE ratios tend to be larger than warranted by the underlying risks, even after adjusting for any additional search and transactions costs, and differential taxes.
Book ChapterDOI
Market Liquidity: Illiquidity and Stock Returns Cross-Section and Time-Series Effects＊
TL;DR: In this paper, the effects of stock illiquidity on stock return have been investigated and it was shown that expected market illiquidities positively affects ex ante stock excess return (usually called risk premium) over time.
Journal ArticleDOI
Presidential Address: Discount Rates
TL;DR: Discount-rate variation is the central organizing question of current asset-pricing research as discussed by the authors, and a survey of discount-rate theories and applications can be found in the survey.