It’s logical to believe that corporate managers have a preference for issuing equity at times when they perceive that their company’s stock price is overvalued, or high relative to some benchmark (such as price-to-earnings ratio or book-to-market ratio). …Read More.
Allocations by institutional investors to alternative investment classes have risen substantially during recent decades. By 2010, the 1,000 largest sponsors of public pension funds allocated on average more than 17% of their assets to alternatives, including 9% to …Read More.
Behavioral finance is the study of human behavior and how that behavior leads to investment errors, including the mispricing of assets. Among the many behavioral biases well-documented in the literature is “local” bias—individual investors tend to invest more …Read More.
Many investors and advisors who implement multifactor portfolios tend to focus on capturing the value premium over the size premium, often for the simple reason that, historically, the value premium has been larger. Others have even challenged the …Read More.
Initial public offerings (IPOs) involve a great deal of uncertainty, which makes them a relatively risky investment. Thus, investors should receive higher expected returns as compensation for the greater amount of risk that’s associated with them. However, the …Read More.
For about three decades, the working asset pricing model was the capital asset pricing model (CAPM), with beta—specifically market beta—being its sole factor. Then, in 1993, the Fama-French three-factor model—which added size and value—replaced the CAPM as the …Read More.
One of the interesting puzzles in finance is that stocks with greater idiosyncratic volatility (IVOL) have produced lower returns. This is an anomaly, because idiosyncratic volatility is viewed as a risk factor—greater volatility should be rewarded with higher, …Read More.
Haim Mozes and John Launny Steffens, authors of the study “Getting More Value Out of the Value Factor,” which was published in The Journal of Investing’s Winter 2015 issue, have attempted to create a model that can accurately …Read More.
One of the questions I’m most often asked by reporters covering finance is: “What are the biggest risks facing investors?” My usual response is that the biggest risk confronting most investors is staring right back at them when …Read More.
Over the past decade, investors have continued to pour new assets into hedge funds. Total hedge fund assets under management are now greater than $2.6 trillion, and the number of hedge funds continues to grow (current estimates put …Read More.
