Alpha Architect https://alphaarchitect.com ​Alpha Architect is an asset management firm with a focus on high-conviction value and momentum factor exposures, as opposed to “closet-index” factor exposures. Fri, 24 Jun 2022 23:00:07 +0000 en-US hourly 1 https://wordpress.org/?v=6.0 How I Invest My Own Money: Robust to Chaos. https://alphaarchitect.com/2022/06/how-i-invest-my-own-money-robust-to-chaos/ Fri, 24 Jun 2022 14:20:00 +0000 https://alphaarchitect.com/?p=80707 A lot of people ask me how I invest my own money, and I am always happy to oblige. But I have never discussed the topic in the public (unlike my friend Meb, who has a post dedicated to the subject). However, this past week Justin and Jack asked if they could grill me on my personal portfolio for their excellent podcast, "Excess Returns."

How I Invest My Own Money: Robust to Chaos. was originally published at Alpha Architect. Please read the Alpha Architect disclosures at your convenience.

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Can Machine Learning Identify Future Outperforming Active Equity Funds? https://alphaarchitect.com/2022/06/can-machine-learning-identify-future-outperforming-active-equity-funds/ Thu, 23 Jun 2022 15:30:00 +0000 https://alphaarchitect.com/?p=80816 We show, using machine learning, that fund characteristics can consistently differentiate high from low-performing mutual funds, as well as identify funds with net-of-fees abnormal returns. Fund momentum and fund flow are the most important predictors of future risk-adjusted fund performance, while characteristics of the stocks that funds hold are not predictive. Returns of predictive long-short portfolios are higher following a period of high sentiment or a good state of the macro-economy. Our estimation with neural networks enables us to uncover novel and substantial interaction effects between sentiment and both fund flow and fund momentum.

Can Machine Learning Identify Future Outperforming Active Equity Funds? was originally published at Alpha Architect. Please read the Alpha Architect disclosures at your convenience.

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Using Institutional Investor’s Trading Data in Factors https://alphaarchitect.com/2022/06/using-institutional-investors-trading-data-in-factors/ Wed, 22 Jun 2022 15:30:00 +0000 https://alphaarchitect.com/?p=77735 The authors investigate how the interaction between entries and exits of informed institutional investors and market anomaly signals affects strategy performance. The long legs of anomalies earn more positive alphas following entries, whereas the short legs earn more negative alphas following exits. The enhanced anomaly-based strategies of buying stocks in the long legs of anomalies with entries and shorting stocks in the short legs with exits outperform the original anomalies, with an increase of 19–54 bps per month in the Fama–French five-factor alpha. The entries and exits of institutional investors capture informed trading and earnings surprises, thereby enhancing the anomalies.

Using Institutional Investor’s Trading Data in Factors was originally published at Alpha Architect. Please read the Alpha Architect disclosures at your convenience.

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Does Emerging Markets Investing Make Sense? https://alphaarchitect.com/2022/06/does-emerging-markets-investing-make-sense/ Fri, 17 Jun 2022 15:47:00 +0000 https://alphaarchitect.com/?p=80506 The analysis above suggests that portfolios that include or exclude emerging allocations are roughly the same. For some readers, this may be a surprise, but for many readers, this may not be "news." That said, even if the data don't strictly justify an Emerging allocation, the first principle of "stay diversified" might be enough to make an allocation.

Of course, the assumptions always matter.

Does Emerging Markets Investing Make Sense? was originally published at Alpha Architect. Please read the Alpha Architect disclosures at your convenience.

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Arbitrage and the Trading Costs of ETFs https://alphaarchitect.com/2022/06/arbitrage-and-the-trading-costs-of-etfs/ Thu, 16 Jun 2022 17:30:00 +0000 https://alphaarchitect.com/?p=80348 This article examines ETF creations and redemptions around price deviations and finds that the expected arbitrage trades are relatively rare in a broad sample of equity index ETFs. In the absence of these trades, price deviations persist much longer. Creation and redemption activity appears to be constrained when exchange conditions would lead to a costlier arbitrage trade, and the size of the price deviations mainly impact the likelihood rather than the amount of trading. The authors also find some evidence that creations and redemptions are less likely to trade on price deviations when they would be required to trade the underlying stocks against broad market movements. Their results suggest that several factors may discourage the built-in ETF arbitrage mechanism and that investors may receive poorer trade execution in these conditions as a result.

Arbitrage and the Trading Costs of ETFs was originally published at Alpha Architect. Please read the Alpha Architect disclosures at your convenience.

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