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Cross Trading Boosts Mutual Funds Returns

  • November 7th, 2016
  • ETF

The vast majority of financial trades take place in open and highly regulated markets. However, asset managers from mutual fund families sometimes offset their trades with affiliated funds in an internal market. Such cross-trading can allow fund families to shift performance from poorly performing funds to better performing funds, artificially inflating their returns. Research shows… Read More

Beware Of The Low Price Illusion

  • November 7th, 2016
  • ETF

The absolute level of a firm’s stock price is arbitrary, as it can be easily manipulated by altering the number of shares outstanding (for example, by splitting the stock). Despite this obvious fact, research into investor behavior has found a strong preference for low-priced stocks on the part of individual investors. For instance, research has… Read More

Japan’s Pension Fund Trips On Active Mgmt

  • November 7th, 2016
  • ETF

Japan’s Government Pension Investment Fund (GPIF) is the world’s biggest state investor, trumping all other managed government retirement and sovereign wealth funds. Prime Minister Shinzo Abe’s drive to spur the Japanese economy out of its two-decade-and-growing economic slump, known as Abenomics, has pushed the GPIF to plow more money into risky investments, aiming both to… Read More

Published Results Impact Future Results

  • November 7th, 2016
  • ETF

Financial research has uncovered many relationships between investment factors and stock returns. For investors, an important question is whether the publication of this research can impact the future size of factor premiums. Asking this question is crucial on two fronts. First, if anomalies are the result of behavioral errors, or even investor preferences, and the… Read More

Trend-Following Strategies Work

  • November 7th, 2016
  • ETF

As an investment style, trend-following, also referred to as time-series momentum, has existed for quite some time. Time-series momentum examines the trend of an asset with respect to its own past performance. This is different from cross-sectional momentum, which compares the performance of an asset with respect to the performance of another asset. Academic research… Read More

Some Alternatives to Big Banks and Their Record-High Fees

  • October 31st, 2016
  • BSP Author

Fees are at an all-time high at the nation’s big banks, while the interest they pay is at an all-time low. Worse yet, evidence recently has come to light of the criminal abuse of a practice common among large banks since the fall of Glass-Steagall: cross-selling. Cross-selling is rooted in consumer research that large financial institutions tend… Read More

Checking In With The ‘Gurudex’

  • October 31st, 2016
  • ETF

One of my favorite sayings about the market forecasts of so-called experts is from Jason Zweig, financial columnist for The Wall Street Journal: “Whenever some analyst seems to know what he’s talking about, remember that pigs will fly before he’ll ever release a full list of his past forecasts, including the bloopers.” You will almost… Read More

On the Performance of Long-Serving Active Mutual Fund Managers

  • October 31st, 2016
  • BSP Author

Given its importance to so many investors, it’s not surprising that there has been a tremendous amount of research into the performance of actively managed mutual funds. An overwhelming body of evidence has demonstrated that the vast majority of active funds underperform their appropriate risk-adjusted benchmarks, even before considering the impact of taxes. In addition,… Read More

Do Upside and Downside Capture Ratios Predict Mutual Fund Performance?

  • October 31st, 2016
  • BSP Author

The importance of actively managed mutual funds in the financial sector has led to substantial research focused on their performance. The overwhelming evidence is that it’s very difficult, if not impossible, to identify ahead of time the shrinking percentage of active managers who will outperform in the future. Among the reasons for the difficult nature… Read More

Diversification Is Key to Factor Investing

  • October 31st, 2016
  • BSP Author

As my co-author, Andrew Berkin, and I explain in our forthcoming book, “Your Complete Guide to Factor-Based Investing,” no matter how strong the evidence regarding the persistence and pervasiveness of an investment factor’s return premium, there’s some chance that the factor will experience long periods of underperformance. You can see the evidence of this in… Read More

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