Join 2,481 investors who get actionable, evidenced-based wealth management insights delivered directly to their inbox.
Subscribe

Resources

When Risk Offers No Rewards

ETF

Idiosyncratic (also referred to as nonsystematic) risk is specific to a single asset or to a small group of assets. Idiosyncratic risk has little or no correlation with market risk. Therefore, it can be substantially mitigated or eliminated by sufficiently diversifying a portfolio. Because it can be mitigated, investors aren’t rewarded with higher expected returns…

Why Momentum Is Struggling

ETF

Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. Mark Carhart, in his 1997 study “On Persistence in Mutual Fund Performance,” was the first to use momentum, together with the three Fama-French…

Trend Following Works the Weakest After Financial Crises

Time-series momentum examines the trend of an asset with respect to its own past performance. This is different than cross-sectional momentum (often referred to as Carhart momentum), which compares the performance of an asset with respect to the performance of another asset. Research into time-series momentum has found it to be persistent across both time…

Monetary Policy & Mutual Fund Flows

ETF

The Federal Open Market Committee (FOMC) of the Federal Reserve sets a target for the federal funds rate (FFR) in an effort to influence the money supply, and in turn the broader economy. This, along with more uncommon actions like quantitative easing, is monetary policy. In a world of efficient markets, all known information is…

‘Incredible Shrinking Alpha’ Continues

ETF

Even though Wall Street tries to keep alive the debate about the merits of active versus passive investing, a clear trend has emerged over the last several decades in which investors are slowly but steadily abandoning the hope of outperformance that active management offers in favor of the certainty of earning market (not average) returns…

A Persistent Kind Of Momentum

ETF

Time-series momentum examines the trend of an asset with respect to its own past performance. This is very different than cross-sectional momentum (often referred to as Carhart momentum), which compares the performance of an asset with respect to the performance of another asset. Ian D’Souza, Voraphat Srichanachaichok, George Jiaguo Wang and Chelsea Yaqiong Yao, who…

Explaining The ‘Disposition Effect’

There is a large body of academic evidence demonstrating that individual investors are subject to the “disposition effect.” Those suffering from this phenomenon, which was initially described by Hersh Shefrin and Meir Statman in their 1985 paper, “The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence,” tend to sell…

Trend Following Works Weakest After Crises

ETF

Time-series momentum examines the trend of an asset with respect to its own past performance. This is different than cross-sectional momentum (often referred to as Carhart momentum), which compares the performance of an asset with respect to the performance of another asset. Research into time-series momentum has found it to be persistent across both time…

Ignore Forecasts—They’re Usually Wrong

ETF

I have been quite surprised by the number of queries I’ve received recently from advisors and clients regarding the dire economic and market forecasts of Frank Porter Stansberry. So, I thought I would share my response. To begin, here’s the entry for him on Wikipedia: “Frank Porter Stansberry is an American financial publisher and author….

Explaining The ‘Disposition Effect’

ETF

There is a large body of academic evidence demonstrating that individual investors are subject to the “disposition effect.” Those suffering from this phenomenon, which was initially described by Hersh Shefrin and Meir Statman in their 1985 paper, “The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence,” tend to sell…

The Irrelevance of Dividends

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 artificially “juicing”…

Revised Catastrophe Bonds Worth A Look

ETF

Insurance-linked securities (ILS) are a relatively recent financial innovation designed to allow risk to transfer from the insurance industry to the financial markets. Pension funds, banks and sovereign wealth funds are the largest holders of ILS, and hedge funds recently have started to specialize in managing ILS portfolios. Catastrophe (cat) bonds make up the largest…

©2021 CTM Financial