Nine Lessons the Market Taught in 2024
In 2024 investors were provided with nine lessons. Many of them are repeats from prior years. Unfortunately, too many investors fail to learn them—they keep making the same errors.
The Impact of Impact Investing
Divestment, a commonly used strategy, involves withdrawing support from companies that contribute to these issues, with the intention of creating positive societal change. Despite its appeal, the connection between divestment actions and their actual impact on society remains unclear.
Growth Predictions, Growth Surprises, and Equity Returns
What matters is not the expectation of future growth, but the deviation between projected growth and realized growth, which, by definition is a surprise, and, thus, is not forecastable.
Artificial Intelligence and the Risks of Harking (Hypothesizing After-the-Fact)
Because AI systems can produce hundreds of seemingly coherent theoretical explanations for mined empirical results, investors need to establish high hurdles before allocating to anomaly-based strategies.
Training Machine Learning Models For Return Prediction
This paper investigates how modeling choices impact MLM outcomes such as cross-sectional return predictability.
Private Credit: Upper Versus Lower Middle Market Lending
Given the similar net returns that UMM and LMM loans have delivered, allocators should consider diversifying across borrower size cohorts. Since LLM loans are somewhat riskier, careful due diligence should be performed in terms of a lender’s credit loss history, fees/expenses, and use of leverage.
Global Factor Performance: January 2025
The following factor performance modules have been updated on our Index website.[ref]free access for financial professionals[/ref] Factor Performance Factor Premiums Factor Data Downloads
Stocks aren’t always the best in the long-run
Advisors and managers will have to adopt a more nuanced view of risk as recognition of the frequency of equity underperformance becomes widespread.
Investigating Simple Formulaic Investing
Simple, easy-to-implement, systematic formula-based investing can still generate market outperformance, providing investors with efficient exposure to well-documented factor premiums.
DIY Trend-Following Allocations: January 2025
Do-It-Yourself trend-following asset allocation weights for the Robust Asset Allocation Index are posted here. (Note: free registration required) Request a free account here if you [...]
What the Index Effect’s Disappearance means for Market Efficiency
One critical, yet often overlooked, choice is how stocks are weighted in the objective function during training, with equally weighted (EW) approaches being the norm. This paper investigates how such choices impact cross-sectional return predictability and the performance of trading strategies derived from these predictions, focusing on the interplay between objective function design and model outcomes.
Forecasting Earnings, Artificial Intelligence (AI) Versus Equity Analysts
A critical task in stock selection is identifying a firm’s true profitability. Given the potential of AI to deal with large data, an important question is: Can AI outsmart seasoned analysts?
Do sell-side analysts say “buy” while whispering “sell”?
Managers are more likely to vote for analysts who exhibit greater “say-buy/whisper-sell” behavior toward these man agers. This suggests that analysts reduce the accuracy of their public recommendations, thereby maintaining the value of their private advice to funds.
Intangibles and the Performance of the Value Factor
Systematic factor-driven value strategies have underperformed broad market indices (such as the S&P 500) over the past 15+ years. That has led many to question [...]
Estimating Long-Term Expected Returns
This study addresses a critical gap in financial forecasting by improving the accuracy of long-term expected return (E(R)) predictions. By evaluating various frameworks and proxies out-of-sample, free from biases like look-ahead bias, it provides more reliable methods for investors to make informed decisions about asset allocations.
Private Equity Versus Public Equity Returns
Cliffwater found that private equity allocations by state pensions produced a 11.0% net-of-fee annualized return over the 23-year period ending June 30, 2023. Over the same period the CRSP 1-10 Index (U.S. total market) returned 7.2% and the MSCI All Country World ex USA Index returned 4.4%.
Frog in the Pan Momentum: International Evidence
Underreaction to continuous news plays a key role in generating momentum internationally.
Global Factor Performance: December 2024
The following factor performance modules have been updated on our Index website.
Diversifying Trend Following Strategies Improves Portfolio Efficiency
Allocation to trend following can further improve the efficiency of their portfolio by also adding allocations to the other uncorrelated strategies, further reducing tail risks by reducing the dispersion of potential outcomes.
DIY Trend-Following Allocations: December 2024
Do-It-Yourself trend-following asset allocation weights for the Robust Asset Allocation Index are posted here. (Note: free registration required) Request a free account here if you [...]