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Fama-French Forum's Blog

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Volatility Lessons

September 27, 2018 Comments (0)

By Eugene F. Fama and Kenneth R. French The high volatility of stock returns is common knowledge, but many investors may not fully appreciate the implications of return volatility. Investors cannot draw strong inferences about expected returns from three, five, or even ten years of realized returns. Those who act on such noisy evidence should reconsider their approach.

Bayes Rule Spreadsheet

February 23, 2018 Comments (0)

By KENNETH R. FRENCH Bayes rule is a way to update your model of the world when you have new information. Suppose we are interested in assessing the probability that a specific hypothesis is true. We start with an initial assessment, called our prior, which is based on all the data we have observed, books we have read, and our other life experiences. This post explains how we should update our initial assessment when we observe new data. (Read the full entry)

Bayes Rule Spreadsheet

January 26, 2018 Comments (0)

By KENNETH R. FRENCH Bayes rule is a way to update your model of the world when you have new information. Suppose we are interested in assessing the probability that a specific hypothesis is true. We start with an initial assessment, called our prior, which is based on all the data we have observed, books we have read, and our other life experiences. This post explains how we should update our initial assessment when we observe new data. (Read the full entry)

Q&A: Are Stock Returns Normally Distributed?

December 15, 2017 Comments (0)

What is the best way to describe the distribution of stock returns—a normal distribution, lognormal, or something else? What should investors do with this information?  (Read the full entry)

Q&A: Small Stocks for the Long Run

December 15, 2017 Comments (0)

In addressing a previous question ("Has the Equity Premium Puzzle Gone Away?"), you suggested that it requires 35 years or more to be reasonably confident of achieving a positive equity premium. Is the time frame similar for the size and value premiums? (Read the full entry)

Q&A: Do Low-Volatility Strategies Produce High Returns?

December 15, 2017 Comments (0)

Baker, Bradley and Wurgler (FAJ 2011) find that low-volatility stocks in the US outperform high-volatility stocks and attribute this apparent anomaly to investor behavioral biases as well as limits to arbitrage. What do you make of their argument? (Read the full entry)

Q&A: Seeking the Inefficient Asset Class

December 15, 2017 Comments (0)

We often hear the claim that some markets are less efficient than others—small company stocks, emerging markets, foreign exchange, and so on. Is there any evidence to support this assertion? (Read the full entry)

Q&A: Why Use Book Value to Sort Stocks?

December 15, 2017 Comments (0)

Data from Ken French's website shows that sorting stocks on E/P or CF/P data produces a bigger spread than BtM over the last 55 years. Wouldn't it make sense to use these other factors in addition to BtM to distinguish value from growth stocks? (Read the full entry)

Q&A: Cap Weighting or GDP Weighting?

December 15, 2017 Comments (0)

What is the merit, if any, in using a country weighting scheme based on Gross Domestic Product (GDP) rather than market capitalization? (Read the full entry)

Q&A: Expected Returns and Socially Responsible Investing

December 15, 2017 Comments (0)

Are expected returns for "socially responsible" strategies lower compared to a conventional approach? (Read the full entry)