Fundamental factors often reflect macroeconomic innovations and so help inform better stock investment decisions.

Jacob Miramar

2019-08-22 11:35:00 Thu ET

Fundamental factors often reflect macroeconomic innovations and so help inform better stock investment decisions. Nobel Laureate Eugene Fama and his long-time co-author Ken French empirically find that several fundamental factors help price the cross-section of average asset returns. These fundamental factors include the return spreads between the top-and-bottom stock portfolios that the analyst sorts on size, value, momentum, asset growth, profitability, and market risk exposure.

In terms of stock market capitalization, small stocks often outperform large stocks by a significant 5%-7% factor premium. Value stocks can consistently beat glamour stocks by a 7%-9% factor premium. Furthermore, investors can earn hefty average returns on stocks with high recent share price performance, low capital-intensive asset growth, high cash profitability, and low market risk exposure (beta arbitrage). AQR Capital investment practitioners show that both value and momentum factor premiums significantly persist in global asset markets. To the extent that key factor premiums exhibit mutual causation with macroeconomic surprises, this causation serves as a new condition for fundamental factor selection. As investors learn from their behavioral biases, quirks, and other investment mistakes, these investors tilt their asset portfolios toward high factor premiums. This factor investment approach helps generate consistent supernormal asset returns in the long run.

 


If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.

Blog+More

Peter Schuck analyzes U.S. government failures and structural problems in light of both institutions and incentives.

Dan Rochefort

2023-04-28 16:38:00 Friday ET

Peter Schuck analyzes U.S. government failures and structural problems in light of both institutions and incentives.

Peter Schuck analyzes U.S. government failures and structural problems in light of both institutions and incentives. Peter Schuck (2015)   Why

+See More

Joseph Stiglitz and Andrew Charlton suggest that free trade helps promote better economic development worldwide.

Monica McNeil

2023-07-21 10:30:00 Friday ET

Joseph Stiglitz and Andrew Charlton suggest that free trade helps promote better economic development worldwide.

Joseph Stiglitz and Andrew Charlton suggest that free trade helps promote better economic development worldwide. Joseph Stiglitz and Andrew Charlton (200

+See More

Most business organizations should continue to create new value in order to achieve long-run success and sustainable profitability.

Peter Prince

2020-09-10 08:31:00 Thursday ET

Most business organizations should continue to create new value in order to achieve long-run success and sustainable profitability.

Most business organizations should continue to create new value in order to achieve long-run success and sustainable profitability. Todd Zenger (2016)

+See More

Economic policy incrementalism for better fiscal and monetary policy coordination

Becky Berkman

2023-12-07 07:22:00 Thursday ET

Economic policy incrementalism for better fiscal and monetary policy coordination

Economic policy incrementalism for better fiscal and monetary policy coordination Traditionally, fiscal and monetary policies were made incrementally. In

+See More

Facebook CEO Mark Zuckerberg testifies in Congress to rise up to the challenge of public outrage.

Rose Prince

2018-04-07 09:36:00 Saturday ET

Facebook CEO Mark Zuckerberg testifies in Congress to rise up to the challenge of public outrage.

Facebook CEO Mark Zuckerberg testifies in Congress to rise up to the challenge of public outrage in response to the Cambridge Analytica data debacle and use

+See More

In the current global market for better biotech advances, medical innovations, and healthcare services, the new integration of artificial intelligence (AI) reshapes the competitive landscape worldwide.

Charlene Vos

2026-04-30 08:28:00 Thursday ET

In the current global market for better biotech advances, medical innovations, and healthcare services, the new integration of artificial intelligence (AI) reshapes the competitive landscape worldwide.

In the current global market for better biotech advances, medical innovations, and healthcare services, the new integration of artificial intelligence (AI)

+See More