The authors find a linkage between labor market conditions and future capital market returns: An increase in the unemployment rate is linked to positive excess returns in both stock and bond markets for the 24-month period following the unemployment rate announcement. Furthermore, by controlling...

A simulated portfolio deliberately based on stale price data — a Rip Van Winkle index fund — has both substantially higher performance and lower volatility than a portfolio that uses up-to-date cap weights. This holds true over the past 67 years in the United States and over shorter...

In 2009, Arnott, Li, and Sherrerd asked how a clairvoyant investor—an investor who can see the future cash flows that a company will deliver to its shareholders and an eventual resale price—would have valued individual stocks. By examining past share prices in the context of subsequent...

Deficits, levels of debt, and demographics are deeply interrelated. Demographics have a major impact on GDP growth as well as on investment returns. The long-term headwind that can be expected in the 21st century compared with the demographic dividend (i.e., tailwind) of the 20th century has...

A trillion-dollar industry is based on investing in or benchmarking to capitalization-weighted indexes, even though the finance literature rejects the mean-variance efficiency of such indexes. This study investigates whether stock market indexes based on an array of cap-indifferent measures of...

Two important concepts played a key role in the bull market of the 1990s. Both represent fundamental flaws in logic. Both are demonstrably untrue. First, many investors believed that earnings could grow faster than the macroeconomy. In fact, earnings must grow slower than GDP because the growth...

We investigate whether dividend policy, as observed in the payout ratio of the U.S. equity market portfolio, forecasts future aggregate earnings growth. The historical evidence strongly suggests that expected future earnings growth is fastest when current payout ratios are high and slowest when...

In a provocative paper, Santa-Clara and Valkanov (2003) present evidence that stock market returns are much higher under Democratic presidents than Republican presidents. Their work was updated by Pastor and Veronesi (2017), who find that the effect is even stronger when the data are extended...

Machine learning offers a set of powerful tools that holds considerable promise for investment management. As with most quantitative applications in finance, the danger of misapplying these techniques can lead to disappointment. One crucial limitation involves data availability. Many of machine...

Factor investing has failed to live up to its many promises. Its success is compromised by three problems that are often underappreciated by investors. First, many investors develop exaggerated expectations about factor performance as a result of data mining, crowding, unrealistic trading cost...