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Articles of Interest

Socially Responsible Investing Is A (Minor) Drag

  • September 5th, 2016
  • ETF

Socially responsible investing, which is designed to address investors’ ethical and financial concerns, has gradually developed to include the consideration of firms’ environmental, social and governance (ESG) performance An interesting question is whether ESG investing has an impact on risk-adjusted returns. It certainly can lead to less efficient diversification (due to screening out companies and… Read More

The Cause Of Myopic Loss Aversion

  • September 5th, 2016
  • ETF

From 1927 through 2015, there has been a very large difference between the returns to the S&P 500 and the returns to risk-free Treasury bills—about 8.5% on an annual average basis and about 6.7% on an annualized basis. This large spread is frequently referred to as the equity premium puzzle, because unless investors possess implausibly… Read More

Mutual Funds Lace Portfolios with Dividend “Juice”

  • September 5th, 2016
  • BSP Author

It has long been known that many investors have a preference for cash dividends. From the perspective of classical financial theory, this behavior is an anomaly. The reason is that, in their 1961 paper, “Dividend Policy, Growth, and the Valuation of Shares,” Merton Miller and Franco Modigliani famously established that dividend policy should be irrelevant… Read More

Don’t Let Wall Street Fool You Into Taking Too Much Risk

  • September 5th, 2016
  • Forbes

Competition for your dollars creates an inertia that always seems to lead Wall Street down the path of unhelpfully increasing the risk in your portfolio. The recent Wall Street Journal headline, “Bond Funds Turn Up Risk,” illustrates an especially alarming trend. Specifically, of increasing the risk in the part of your portfolio that should be… Read More

Looking At Your Portfolio Hurts Returns

  • September 5th, 2016
  • ETF

Earlier this week, we examined a pair of studies that sought to explore the relationship between the equity premium puzzle and investor behavior, specifically a behavior known as myopic loss aversion (MLA). MLA describes the tendency of investors who are loss-averse to evaluate their portfolios too frequently, thus causing them to take a short-term view… Read More

It’s A Good Thing Investing Isn’t Like the Olympics

  • August 29th, 2016
  • Forbes

Imagine that your entire life revolves around a single performance lasting less than 14 seconds. You’ve sacrificed your youth, close friendships and any semblance of a career in pursuit of validating your Herculean effort on the world’s largest stage. The hopes of your country on your shoulders. Tens of millions of gawkers eager to praise… Read More

Research Highlights Active Mgmt Shortcomings

  • August 29th, 2016
  • ETF

In many walks of life, trying to discern the lucky from the skilled can be a difficult task. For example, it seems like every time a professional sports draft occurs, debate again flares up over whether the evaluation of college (or even high school) athletes is an exercise in skill or in luck. Were the… Read More

Use Caution With Low Vol Strategies

  • August 29th, 2016
  • ETF

As we have discussed before, one of the major problems for the first formal asset pricing model developed by financial economists, the capital asset pricing model (CAPM), was that it predicts a positive relation between risk and return. But empirical studies have found the actual relation to be flat, or even negative. Over the past… Read More

Irrelevance Of Dividends

  • August 29th, 2016
  • ETF

Research has established that dividend policy should be irrelevant to stock returns, yet investors have long demonstrated an irrational preference for them. Mutual fund providers are well-aware of this fact. Earlier this week, we reviewed a pair of studies showing that mutual fund managers exploit investors’ well-documented preference for cash dividends to attract assets by… Read More

Mutual Funds Lace Portfolios With Dividend ‘Juice’

  • August 22nd, 2016
  • ETF

It has long been known that many investors have a preference for cash dividends. From the perspective of classical financial theory, this behavior is an anomaly. The reason is that, in their 1961 paper, “Dividend Policy, Growth, and the Valuation of Shares,” Merton Miller and Franco Modigliani famously established that dividend policy should be irrelevant… Read More

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