Cornell, Hsu, and Nanigian discover that the investment manager selection methodology commonly employed by industry practitioners turns out, in fact, to be a detriment to performance. The recent track record of an active manager contains no useful information about her future outperformance. In fact, recent performance is often a contrarian indicator! Asset owners, who select […]
Rayliant’s research team, led by Dr. Jason Hsu, applied well-studied factor strategies from the U.S. equity anomalies literature to Chinese A-shares, demonstrating which factors have worked and which have not over the last two decades since the opening of China’s stock markets. While a number of traditional factors such as value and size appear to work well […]
Cao, Hsu, Xiao, and Zhan examine the impact of smart beta equity exchange-traded funds (ETFs) on how investors evaluate active mutual fund performance. They find that when smart beta ETFs are actively traded, mutual fund flows become “smarter”, with a higher sensitivity to alphas from multi-factor models. The dominance of the CAPM alpha weakens and […]
Not every factor profits investors when implemented through a passive strategy. Size and quality show weak robustness, and liquidity-demanding factors, such as illiquidity and momentum, are associated with high trading costs. Investors may be better off accessing these factors through active management rather than indexation.
Rayliant Global Advisors today announced that Mike Bowers, previous head of marketing and brand strategy for smart beta pioneer Research Affiliates, is joining the firm as a Managing Director and CMO. Over the last 10 years, Mike helped Research Affiliates build a loyal following and earn widespread notoriety as a leader in smart beta and […]
Contrary to the belief of many casual central bank watchers, there is a striking parallel between China’s quantitative easing and that of Japan, U.S. and Europe. Just as the Fed expands its balance sheet to bankroll the U.S. government, so does the Chinese central bank – through its state-owned banking satellites – expand its balance sheet to lend to SOEs to promote employment and growth.
Cornell and Hsu assert that the standard consumption-based model has failed to explain the cross-section of expected returns because its assumption that security prices are set by end investors, who wish to maximize their intertemporal consumption, is counterfactual.
Complexity can dampen investor understanding, leading to poor investment decision making and ultimately derailing long-term financial goals—yet the bias toward investment complexity persists, reinforced by explanations that are behavioral in nature.
Substantial evidence supports cyclicality in factor returns. Evidence also indicates most investors don’t fully benefit from this insight due to behavioral biases—but contrarian investors do.
The rapid rise and sharp decline of the A-shares market represents a massive redistribution of wealth, especially painful to uninformed investors who bought hot stocks near the peak. What should the Chinese government do now?
Some of the investment industry’s best thinkers discussed their work at a Research Affiliates meeting. Jason Hsu’s report emphasizes that factor-based investing is incomplete unless it’s paired with an asset-based approach.
The excess return earned by the average investor in value mutual funds was meaningfully negative over a 23-year period when the funds themselves outperformed the market. Why don’t all value investors benefit from the value premium?
Beyond the debate over definitions, smart beta strategies can be the prime alternative to active management for our times just as cap-weighted index funds served so admirably in that role for the past four decades.
The publish-or-perish syndrome and the smart beta movement have motivated academics and practitioners to come up with a spate of new factors. How can investors determine which ones are legitimate and how to use them in their equity portfolios?
Investors devote significant resources to deciding whether a manager is skillful. When it comes to passive investing, they appear to lose their critical faculties.
It’s not merely interesting that the value premium tends to revert toward the long-term average; it’s strategically consequential, too.
Value investing is uncomfortable because it goes against our genetic programming; on our evolutionary path, fear and greed probably served to keep us safe.
Many investors piled on the equity bandwagon this year, pushing prices up to dizzying heights. With current yields for U.S. equities at record lows, is it time to get off the bandwagon?
Fundamentals-weighted index investing extracts the value premium through contrarian rebalancing in a diversified core portfolio.
The conventional ex-post risk measures of tracking error and the information ratio must be reinterpreted for Smart Beta strategies.