Option prices predict the cross section of equity returns. We show that, unconditionally, the prices of long-dated options contain all the information relevant for predicting returns. Information, however, shifts towards short-dated options when an earnings announcement is imminent and when...

Factor returns, net of changes in valuation levels, are much lower than recent performance suggests. Value-add can be structural, and thus reliably repeatable, or situational—a product of rising valuations—likely neither sustainable nor repeatable. Many investors are performance chasers who...

We challenge the common view that smart beta strategies and factor tilts are equivalent. Initially, the term “smart beta” referred to strategies that broke the link between the price of a stock and its weight in the portfolio or index. Capitalization weighting does not do that — neither...

In our paper — “How Can ‘Smart Beta' Go Horribly Wrong?” — we show, using U.S. data, that the relative valuation of a strategy (in comparison with its own historical norms) is correlated with the strategy's subsequent return at a five-year horizon. The high past performance of many of...

This is the first in a series of papers we will publish in 2017 that demonstrate factor tilts generally deliver far less alpha in live portfolios than they do on paper, or put another way, investment managers generally fail to capture the returns that would be expected based on their factor...

In a series of papers we published in 2016, we show that relative valuations predict subsequent returns for both factors and smart beta strategies in exactly the same way price matters in stock selection and asset allocation. To many, one surprising revelation in that series is that a number of...

Value investing, as defined by the Fama–French HML factor, has underperformed growth investing since 2007, producing a drawdown of 55% as of mid-2020. The underperformance leads many to argue that value is dead. Our analysis attributes value's recent underperformance to two sources: the HML...

A number of recent papers illustrate that moving to continuous time and having Brownian motion distorted signal provides a tractable procedure allowing to compute the set of payoffs achievable in the equilibrium of a repeated game. However many processes in economics are discontinuous and are,...