Things I've Learned from Gene
KRF: Gene Fama has taught us a lot over the last 50 years. In this essay, I describe some of the things Gene has taught me about doing research, writing papers, and life in general. (Read the full entry)
View ArticlePortable Alpha
Portable alpha is the return from an active investment strategy that has no exposure to some index, such as the S&P 500 or the Russell 2000. It is often sold as a way to get the benefits of active...
View ArticleLong/Short Investment Strategies
Long/Short (LS) strategies buy one equity portfolio and short another. They are often sold as a way to add a premium with special diversification benefits that arise because the premium is not highly...
View ArticleQ&A: How do you decide which research papers to read?
EFF/KRF: Our strategies for choosing papers are similar. Sometimes we donât have a choice. If we agree to referee a paper or discuss it at a conference, we are certain to read it, and we read most of...
View ArticleQ&A: Can we evaluate an investment managerâs skill more quickly by...
EFF/KRF: Unfortunately, daily returns donât provide more information. (Read the full entry)
View ArticleQ&A: What can one learn from one, three, or five years of past returns...
EFF/KRF: The short answer: usually almost nothing. (Read the full entry)
View ArticleQ&A: What does it mean to say HML is redundant?
EFF/KRF: There is some confusion about the interpretation of the evidence in Fama and French (2014, âA Five-Factor Model of Expected Returnsâ) that HML is redundant for explaining average U.S....
View ArticleQ&A: Book Value
What is the validity of book value in today's environment, especially as it applies to financial firms? EFF/KRF: There is always an issue about how to "properly" measure value. But all the work we have...
View ArticleQ&A: Defined Benefit Dilemma
What suggestions do you have for defined benefit plans as equities have lost 40% to 60% of value, year-to-date, with interest rates at historical lows, and liabilities that are growing. EFF/KRF: Sorry,...
View ArticleQ&A: Prediction in Valuations?
Do valuation measures such as price/earnings or price/dividend ratios help predict future returns? Are they telling us anything now? EFF/KRF: Yes, but not with lots of confidence. The market return...
View ArticleQ&A: Three-Factor Model and Recent Returns
How well has the three-factor model explained the recent behavior of stock returns? Â EFF/KRF: For diversified portfolios, quite well. For example, the model's market, size, and value-growth factor...
View ArticleQ&A: Recent Deleveraging
Do you think that the current investor deleveraging is playing a significant role in asset pricing? If so, has it been consistent with your views on asset pricing? Is this something we should be really...
View ArticleQ&A: Gold as a Haven?
Should I consider gold as a possible safe haven for some portion of my portfolio? EFF/KRF: The volatility of gold prices (and of commodity prices in general) is much like that of stock returns. Gold is...
View ArticleQ&A: Timing Volatility
Stock market volatility is currently quite high. Does it make sense for investors to get out of the market until volatility settles down? EFF: If the current high volatility makes you permanently...
View ArticleQ&A: T-bills Shift
What would happen if many investors decided to sell their stocks and invest in Treasury bills instead? EFF/KRF: Stock prices would go down and T-bill prices would go up - the usual response of prices...
View ArticleQ&A: The Value of Historical Data
How useful is an approach based on historical data when the current situation appears to be unprecedented? EFF/KRF: Any current situation is always somewhat unprecedented and somewhat old stuff. Large...
View ArticleQ&A: Market Turmoil
Is the market turmoil a sign that markets are not efficient? EFF/KRF: The market turmoil is caused by some combination of (i) quickly fluctuating changes in expected cashflows (future profitability),...
View ArticleQ&A: Regulation
Some people have argued that the turmoil was caused by a lack of government regulation. What do you think? Do we need more regulation? KRF: It is not obvious that financial regulations were weakened...
View ArticleQ&A: Recessions
The US economy is in a recession. Does it make sense to own stocks during a recession? EFF/KRF: There is no evidence that market timing in response to economic events enhances expected returns. The...
View ArticleQ&A: Global Correlations
Have global correlations gone, effectively, to 1? Have cross-country and cross asset-class correlations behaved any differently this time than in previous downturns? EFF/KRF: When market volatility...
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