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Getting To The Cause Of Quality

  • August 15th, 2016

Among the hot “smart beta” strategies into which investors are pouring assets is quality. For example, the iShares Edge MSCI USA Quality Factor ETF (QUAL | A-84), which is only about three years old, already has $2.7 billion in assets. Before you consider investing in these increasingly popular strategies, however, it’s worth understanding the sources…

Arbitrage Capital Increases Market Efficiency

  • August 15th, 2016

The hypothesis of an efficient market is based on the concept that informed, rational traders would arbitrage away any temporary deviations from “correct” prices. Thus, price efficiency depends upon the actions of arbitrageurs and the availability of arbitrage capital. When arbitrage capital is plentiful, anomalies should be quickly eliminated. However, if capital is scarce or…

Investors Like Lotteries

  • August 15th, 2016

There’s substantial evidence from the field of behavioral finance that individual investors have a strong preference for investments that exhibit the same characteristics as lottery tickets. Two of these characteristics are high kurtosis (or fat tails) and positive skewness, meaning values to the right of (or more than) the mean are fewer but farther from…

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