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What More Can We Expect from Stocks?
A reader asked if I could expand on my post from two weeks back on expected stock returns. Specifically, he asked if I could focus on how tilts toward certain types of stocks could be expected to provide (or subtract) additional expected return beyond what we expect the overall market to do.
In that post, I noted that a reasonable expectation for the long-term real return of U.S. stocks was about 4 percent. ....
The Long Slog of Europe's Debt Crisis
Europe’s debt crisis is entering its fourth year, and I wanted to pass along an update since it’s not getting the news attention it once was. In some ways, that’s good news. Part of the reason Europe is getting less attention is because its bond markets aren’t in the full blown crisis mode they’ve faced during the past three years.
Yield Spreads Relative to Germany
Can Momentum Reduce Tracking Error in Small- and Value-Tilted Portfolios?
Last week, we saw that a momentum strategy could theoretically reduce tracking error in small- and value-tilted portfolios. Today, we’ll see if this has made a difference historically.
Last week's post referenced the potential improvement that an allocation to a momentum-based stock strategy can have in terms of reducing the tracking error in small- and value-tilted portfolios. Keep in mind that momentum is the tendency for stock....
Recent Discoveries Concerning Value and Momentum
The past few years, in my humble opinion, have produced some of the most interesting and practical (which is always nice) empirical finance research in a long, long time. Not surprisingly, a good bit of this research has been co-authored by professors at the University of Chicago (Gene Fama and Toby Moskowitz) or by alumni of the university (Cliff Asness). Over the next few weeks, I’m planning to profile a number of these pieces.
Today, I’m starting wi....
Momentum Premium 101
Momentum Premium: Returns
Momentum is the tendency for good past performance to continue. In stocks, the premium was first documented in Narasimhan Jegadeesh and Sheridan Titman’s 1993 Journal of Finance paper titled “Returns to Buying Winners and Selling Losers.” In the U.S., the momentum premium has averaged 9.7 percent per year o....
Efficient Markets Today
John Cochrane recently wrote a piece on his views of how efficient markets theory is viewed today. For those of you interested in the latest and greatest in financia....
5 Traits of Factor Investing, or the Wave of the Future
The Wall Street Journal recently profiled factor investing, which is my candidate for what well diversified portfolios will look like in the future.
However, I don’t expect this idea to take the world by storm any time soon, since most of my discussions with others on this topic end with blank stares and one or m....
A Profile of 10 Return Premiums
(This post stems from my interview with Antti Ilmanen, author of Expected Returns. Feel free to check out part one and part two of my Q&A with....
Q&A with Antti Ilmanen, Part 2
This is the second half of my interview with author Antti Ilmanen. For the first half, please read Q&A with Antti Ilmanen, Author of Expected Returns.
JK: In the book you point out the historically poor reward for bearing credit risk. Specifically, you say that "Bonds exposed to credit risk have only marginally outperformed Treasuries over long histories by 0.2-0.5 percent ann....
Q&A with Antti Ilmanen, Author of Expected Returns, Part 1
Antti Ilmanen is the author of Expected Returns, a book published by Wiley Finance this year. In my opinion it is a must read for investment professionals and for those investors who want to better understand the science of investing. Antti has just joined AQR Capital Management to represent ....