A Growth-Value Approach

Before Richard Bernstein headed up his own money management firm he was head of quantitative research for Merrill Lynch and wrote a great book on style investing: Style Investing: Unique Insight Into Equity Management. Richard basically took the opportunity to illustrate when the best times were to invest in growth and value styles by detailing … Continue reading A Growth-Value Approach

Large Financial Crashes

Paper Abstract: "We propose that large stock market crashes are analogous to critical points studied in statistical physics with log-periodic correction to scaling. We extend our previous renormalization group model of stock market prices prior to and after crashes [D. Sornette et al., J.Phys.l France 6, 167, 1996] by including the first non-linear correction. This … Continue reading Large Financial Crashes

The Case for a 2 Asset Class Portfolio

Nobel winner, Harry Markowitz explicitly said in his paper, Portfolio Selection (attached), “It is necessary to avoid investing in securities with high covariances among themselves.” He also said to invest in an asset class one has to have “beliefs about the future performances of available securities.” Therefore the question becomes, how many asset classes are … Continue reading The Case for a 2 Asset Class Portfolio

Replicating Anomalies

In their paper, "Replicating Anomalies," researchers Kewei Hou, Chen Xue, and Lu Zhang ("HXZ") looked at 447 factors from quantitative literature to reproduce the outcomes. They found that 286 factors (64%) had no statistical significance. For the 161 factors that appear robust, their magnitudes are less than reported. Specifically, 115/161 don't have noteworthy "alphas." Long … Continue reading Replicating Anomalies