1/ SPY betas of EFA, EEM, and DBC over the past ten years (contrast with TLT)... draw your own conclusions about diversification potential, etc.
(The beta measurement is a composite of metrics from three months out to five years.)
EFA:
2/ EEM:
3/ DBC:
4/ TLT:
5/ Betas were measured using daily closing prices; the composite is an arithmetic average of betas starting three months out with a linearly increasing lookback window going out to five years.
6/ Rolling one-year correlations to SPY (daily data) for
EFA:
7/ EEM:
8/ DBA:
9/ TLT:
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1/ Causal Effect of Limits to Arbitrage on Asset Pricing Anomalies (Chu, Hirshleifer, Ma)
"We examine the causal effect of limits to arbitrage using Regulation SHO, which relaxed short-sale constraints for a set of pilot stocks, as a natural experiment."
"A sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward, but such sharp price increases predict a substantially heightened probability of a crash."
2/ "On average, industries that experienced a price run-up continue to go up by 7% over the next year (5% net of market) and 0% over the next two years (0% net of market).
"An *industry* run-up is also associated with poor average subsequent *market* returns."
3/ "If we study only cases in which a crash occurs, the average return experienced between the initial run-up and subsequent peak is 30% (107% for precious metal stocks in the late 1970s). It is difficult to bet against a bubble, even if one has correctly identified it ex-ante."
One of my favorite quotes from this eye-opening book:
"July 30, 1931: Newspapers are full of articles telling people to buy stocks, real estate at bargain prices. They say times are sure to get better... The trouble is that nobody has any money." (p. xii) mrzepczynski.blogspot.com/2020/12/one-ma…
"Reading his views in real time is fascinating. He has hopes for Hoover after 1929 and concerns with the Roosevelt policies. He writes about bank failures, the inability to collect on bills from those with nothing to give, fortunes made and lost in a wild stock market...
"This paper compares the efficacy of three common transaction cost mitigation techniques: limiting a strategy to cheap-to-trade securities, rebalancing less frequently, and “banding.” "
2/ "We identify the cost of trading from observed bid-ask bounce. [Buyer (seller) initiated trades tend to occur at higher [lower] prices.] Bid-ask bounce induces a negative serial correlation in transaction prices, which is stronger for stocks that are more expensive to trade."
3/ "Ignoring transaction costs, all seven of the strategies earn positive average annual returns and have significant CAPM alphas.
"The FF five-factor model explains all (most) of the performance of the large (small and micro) cap defensive and stock issuance strategies."
"Entirely avoidable errors routinely make it past the Maginot Line of peer review. Books, media reports and our heads are being filled with ‘facts’ that are incorrect, exaggerated, or drastically misleading." (p. 5)
2/ "A set of experiments on 1,000 people found evidence for the ability to see the future using ESP. The paper was written by a top psychology professor, Daryl Bem, from Cornell. It was published in one of the most highly regarded, mainstream peer-reviewed psychology journals."
"We sent the paper to the same journal, the Journal of Personality and Social Psychology. The editor rejected it, explaining their policy of never publishing studies that repeated a previous experiment.
1/ Impact of Crowding in Alternative Risk Premia Investing (Baltas)
"We create a framework to explore the implications of crowding. Divergence (convergence) premia like momentum (value) are tend to underperform (outperform) following crowded periods."
2/ "When momentum is driven by net inflows, its turnover is likely to fall, as the investor remains positioned in the same assets.
"We hypothesize that crowding is more likely to have a destabilizing effect for divergence premia, as it can drive prices away from fundamentals."
3/ "Investors allocating to convergence premia have a natural anchor that signals the end of a profitable opportunity. Larger investor flows in can bring faster convergence of valuation spreads.
"We hypothesise that anchored strategies are more resilient to incoming flows."