After analyzing small-cap biotech data from 2007 on, Akash Goyal has found that higher hedge fund ownership is positively correlated with forward returns and that stocks with higher short interest are correlated with negative forward returns.
A defense of modern portfolio theory (MPT) by Nathan Erickson, CFA, CAIA, and Richard Stott; Nicolas Rabener's analysis of the value of factor investing; and an examination of the non-retirement phenomenon by Barbara Stewart, CFA, were among the leading posts from last month.
C. Thomas Howard and Jason Voss, CFA, have called for the demise of modern portfolio theory (MPT) and the capital asset pricing model (CAPM). They say “financial markets should be viewed and analyzed using a behavioral lens.” Nathan Erickson, CFA, CAIA, and Richard Stott have a different opinion.
In the latest edition of the In Practice series, Mark Harrison, CFA, and Phil Davis summarize recent research into whether buying US equities that are underpriced based on simple fundamental-to-price ratios yields better performance than investing in broad market indexes.
Economics for Independent Thinkers is useful to practitioners who make economic forecasts. Investment strategist Daniel Nevins, CFA, recounts becoming a skeptic about the application of quantitative methods to economics and about standard prediction methods, such as the lagging nature of consumer confidence surveys. He especially disdains economists who strive to make reality fit their models.
William Birdthistle provides a witty description of mutual fund design and categorizes its imperfections entertainingly, offering more palatable alternatives. This slender volume is a welcome addition to the library of the professional and retail investor alike.
Interest in "factor investing" reached an all-time high in May, according to Google Trends. So Nicolas Rabener and his associates analyzed factor valuations using fundamental metrics and contrasted these current valuations with historical averages as a method to determine factor attractiveness.
Jason Voss, CFA, provides his choices for Weekend Reads for Investors. This edition features surprising facts about coffee consumption, global choke points in the food supply, graphics showing how cryptocurrencies are likely to affect finance, and more.
This comprehensive study of the structure, price dynamics, and valuation of exchange-traded funds (ETFs) addresses their current uses in various investment settings. It attributes the rapid growth of ETFs to factor-based investing and the rise of robo-advisers. The book is a fascinating deep dive into all categories of ETFs, including equity, fixed income, foreign currencies, and alternative investments, with a particular focus on issues of tracking and liquidity.
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