Pub Date : 2021-01-01DOI: 10.38030/index-journal.2021.1.4
I. Glišić
{"title":"Towards Transformative Propaganda","authors":"I. Glišić","doi":"10.38030/index-journal.2021.1.4","DOIUrl":"https://doi.org/10.38030/index-journal.2021.1.4","url":null,"abstract":"","PeriodicalId":36431,"journal":{"name":"Journal of Index Investing","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90990613","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Empirical literature on value and growth style investing has found value style investing to be a favorable long-term investment strategy. However, value investing has lost its edge in the past 10–12 years. As a result, the value premium has been proclaimed dead by institutional investors who argue common valuation multiples, such as price to book, are not valid proxies for valuation. In this article we argue that the academic definition of value investing is structurally flawed. Common valuation multiples do not indicate mispricing (cheap vs. expensive) but rather investors’ discount rate, which is a denominator metric in valuation. We discuss the practical application of a new definition of value, and provide both theoretical and empirical evidence that a disruptive growth stock valuation premium exists in equity markets. We argue that in the past decade the valuation premium in growth stocks has been the main driver of their outperformance. TOPICS: Style Investing, private equity, portfolio construction, equity portfolio management, mutual funds/passive investing/indexing, security analysis and valuation Key Findings • The academic definition of value investing has markedly underperformed for more than a decade. • In this article we argue that the under performance of value investing is a result of the lack of a valid asset pricing model. • We introduce a new definition of ‘value’ and a value premium that can be captured in all stocks, regardless whether stocks are classified as growth, value, large or small cap stocks.
{"title":"Asset Pricing: Trouble in Value Land","authors":"Pete Johansson, Ulrika Johansson","doi":"10.3905/jii.2020.1.099","DOIUrl":"https://doi.org/10.3905/jii.2020.1.099","url":null,"abstract":"Empirical literature on value and growth style investing has found value style investing to be a favorable long-term investment strategy. However, value investing has lost its edge in the past 10–12 years. As a result, the value premium has been proclaimed dead by institutional investors who argue common valuation multiples, such as price to book, are not valid proxies for valuation. In this article we argue that the academic definition of value investing is structurally flawed. Common valuation multiples do not indicate mispricing (cheap vs. expensive) but rather investors’ discount rate, which is a denominator metric in valuation. We discuss the practical application of a new definition of value, and provide both theoretical and empirical evidence that a disruptive growth stock valuation premium exists in equity markets. We argue that in the past decade the valuation premium in growth stocks has been the main driver of their outperformance. TOPICS: Style Investing, private equity, portfolio construction, equity portfolio management, mutual funds/passive investing/indexing, security analysis and valuation Key Findings • The academic definition of value investing has markedly underperformed for more than a decade. • In this article we argue that the under performance of value investing is a result of the lack of a valid asset pricing model. • We introduce a new definition of ‘value’ and a value premium that can be captured in all stocks, regardless whether stocks are classified as growth, value, large or small cap stocks.","PeriodicalId":36431,"journal":{"name":"Journal of Index Investing","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-11-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41301179","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Although a vast amount of research on IPOs exists, little research has been done from the point of view of index funds and the excess return opportunity gained from buying IPOs before the index inclusion date. In this article, the authors analyze US listed IPOs added to the Russell 1000 and Russell 2000 Indexes between 2010 and 2018. They conclude that index funds could have generated excess returns by buying IPOs before their inclusion in indexes. However, the potential for excess returns differs depending on the index involved, the timing of the purchase, the relative size (market capitalization) of the IPO, and the IPO’s sector. Further, the authors examine the risk that index funds incur by buying IPOs early, as it is not clear in advance which IPOs will eventually be included in an index. The authors conclude that for Russell 1000 Index funds, IPOs with a larger market capitalization have a higher probability of being included in that index but have a commensurately lower excess return. The reverse is true for IPOs with a comparatively lower market capitalization. For the potential excess returns to be harvested, the authors developed a risk–return framework that could guide index portfolio managers in timing and sizing their IPO trades before the IPOs are included in indexes. TOPICS: Fundamental equity analysis, passive strategies Key Findings • Index funds tracking the Russell 1000 and Russell 2000 could have generated excess return by buying IPOs before their inclusion in indexes. • The potential for excess returns differs depending on the index involved, the timing of the purchase, the relative size (market capitalization) of the IPO, and the IPO’s sector. • The authors develop a risk–return framework that could guide index portfolio managers in timing and sizing their IPO trades before their inclusion in indexes.
{"title":"Proactive Indexing: Index Funds and IPOs","authors":"J. Bender, Robert C. Pozen, M. Tank","doi":"10.2139/ssrn.3620572","DOIUrl":"https://doi.org/10.2139/ssrn.3620572","url":null,"abstract":"Although a vast amount of research on IPOs exists, little research has been done from the point of view of index funds and the excess return opportunity gained from buying IPOs before the index inclusion date. In this article, the authors analyze US listed IPOs added to the Russell 1000 and Russell 2000 Indexes between 2010 and 2018. They conclude that index funds could have generated excess returns by buying IPOs before their inclusion in indexes. However, the potential for excess returns differs depending on the index involved, the timing of the purchase, the relative size (market capitalization) of the IPO, and the IPO’s sector. Further, the authors examine the risk that index funds incur by buying IPOs early, as it is not clear in advance which IPOs will eventually be included in an index. The authors conclude that for Russell 1000 Index funds, IPOs with a larger market capitalization have a higher probability of being included in that index but have a commensurately lower excess return. The reverse is true for IPOs with a comparatively lower market capitalization. For the potential excess returns to be harvested, the authors developed a risk–return framework that could guide index portfolio managers in timing and sizing their IPO trades before the IPOs are included in indexes. TOPICS: Fundamental equity analysis, passive strategies Key Findings • Index funds tracking the Russell 1000 and Russell 2000 could have generated excess return by buying IPOs before their inclusion in indexes. • The potential for excess returns differs depending on the index involved, the timing of the purchase, the relative size (market capitalization) of the IPO, and the IPO’s sector. • The authors develop a risk–return framework that could guide index portfolio managers in timing and sizing their IPO trades before their inclusion in indexes.","PeriodicalId":36431,"journal":{"name":"Journal of Index Investing","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45056380","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-03-01DOI: 10.38030/index-journal.2020.1.2
Ella Cattach, Elliot Yates
{"title":"Good Representation","authors":"Ella Cattach, Elliot Yates","doi":"10.38030/index-journal.2020.1.2","DOIUrl":"https://doi.org/10.38030/index-journal.2020.1.2","url":null,"abstract":"","PeriodicalId":36431,"journal":{"name":"Journal of Index Investing","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83452772","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-03-01DOI: 10.38030/indexjournal-2020.1.1
Alex Burchmore
{"title":"Guan Wei’s “Australerie” Ceramics and the Binary Bind of Identity Politics","authors":"Alex Burchmore","doi":"10.38030/indexjournal-2020.1.1","DOIUrl":"https://doi.org/10.38030/indexjournal-2020.1.1","url":null,"abstract":"","PeriodicalId":36431,"journal":{"name":"Journal of Index Investing","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73727465","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-01-01DOI: 10.38030/index-journal.2020.2.4
S. Chalmers
{"title":"Clothes Maketh the Man: Mimesis, Laughter, and the Colonial Rule of Law","authors":"S. Chalmers","doi":"10.38030/index-journal.2020.2.4","DOIUrl":"https://doi.org/10.38030/index-journal.2020.2.4","url":null,"abstract":"","PeriodicalId":36431,"journal":{"name":"Journal of Index Investing","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89180952","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-01-01DOI: 10.38030/index-journal.2020.2.2
H. Hughes
{"title":"Figuring Folk Justice: Francis Howard Greenway’s Prison Scenes from Newgate, Bristol, 1812","authors":"H. Hughes","doi":"10.38030/index-journal.2020.2.2","DOIUrl":"https://doi.org/10.38030/index-journal.2020.2.2","url":null,"abstract":"","PeriodicalId":36431,"journal":{"name":"Journal of Index Investing","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79943724","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Harald Henke, Hendrik Kaufmann, Philip Messow, Jieyan Fang-Klingler
This article investigates the application of factor investing in corporate bonds. The authors analyze five different long-only factor investment strategies (Value, Equity Momentum, Carry, Quality, Size) within the USD investment grade and high yield market. These factors can explain a significant part of the cross-sectional variation in corporate bond excess returns. Combinations of the single factors turn out to be superior in risk-adjusted terms. Because the correlations between the single factors are low, a combined multi-factor signal benefits from diversification among the factors. A signal blending strategy is particularly suitable for active approaches targeting high alpha. This strategy leads to alphas up to 1.27% within investment grade and 5.90% within high yield. In contrast, a portfolio blending strategy is better aligned with more passive approaches, targeting low turnover and low tracking error. TOPICS: Factor-based models, style investing, performance measurement Key Findings • The authors find a strong positive relationship between Value, Equity Momentum, Size, Carry, and Quality and future returns for USD denominated corporate bonds. • Due to the attractive correlation structure of the single factors, a multifactor strategy enhances the risk return profile even further. • The authors’ multifactor strategy leads to alphas up to 1.27% (5.90%) in IG (HY) even after transactions costs are taken into account.
{"title":"Factor Investing in Credit","authors":"Harald Henke, Hendrik Kaufmann, Philip Messow, Jieyan Fang-Klingler","doi":"10.2139/ssrn.3512761","DOIUrl":"https://doi.org/10.2139/ssrn.3512761","url":null,"abstract":"This article investigates the application of factor investing in corporate bonds. The authors analyze five different long-only factor investment strategies (Value, Equity Momentum, Carry, Quality, Size) within the USD investment grade and high yield market. These factors can explain a significant part of the cross-sectional variation in corporate bond excess returns. Combinations of the single factors turn out to be superior in risk-adjusted terms. Because the correlations between the single factors are low, a combined multi-factor signal benefits from diversification among the factors. A signal blending strategy is particularly suitable for active approaches targeting high alpha. This strategy leads to alphas up to 1.27% within investment grade and 5.90% within high yield. In contrast, a portfolio blending strategy is better aligned with more passive approaches, targeting low turnover and low tracking error. TOPICS: Factor-based models, style investing, performance measurement Key Findings • The authors find a strong positive relationship between Value, Equity Momentum, Size, Carry, and Quality and future returns for USD denominated corporate bonds. • Due to the attractive correlation structure of the single factors, a multifactor strategy enhances the risk return profile even further. • The authors’ multifactor strategy leads to alphas up to 1.27% (5.90%) in IG (HY) even after transactions costs are taken into account.","PeriodicalId":36431,"journal":{"name":"Journal of Index Investing","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-12-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47191534","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We revisit the long-documented index effect, whereby stocks that are added/deleted to major indices experience positive/negative excess returns around the date that the indices rebalance. Our analysis focuses on major indices from MSCI, S&P, and FTSE Russell. We corroborate earlier research that the index effect is no longer significant for the S&P 500 and has weakened significantly for the Russell 1000 and Russell 2000. However, we find that the index effect is present in the global indices, particularly the MSCI World Small Cap and MSCI Emerging Markets indices. Security characteristics matter as well. The index effect is stronger for larger securities (relative to their index). We also find that the index effect appears to hold further ahead—for instance, a month before the index rebalance date. TOPICS: Mutual fund performance, passive strategies, exchange-traded funds and applications Key Findings • The index effect is an important phenomenon that needs to be monitored, particularly by index managers. • The index effect varies greatly across indices; it is most present in global indices, particularly those covering small cap and Emerging Markets. • The potential value add is even higher if one can accurately predict and trade index changes ahead of the announcement.
{"title":"The Past, Present, and Future of the Index Effect","authors":"J. Bender, R. Nagori, M. Tank","doi":"10.3905/jii.2019.1.076","DOIUrl":"https://doi.org/10.3905/jii.2019.1.076","url":null,"abstract":"We revisit the long-documented index effect, whereby stocks that are added/deleted to major indices experience positive/negative excess returns around the date that the indices rebalance. Our analysis focuses on major indices from MSCI, S&P, and FTSE Russell. We corroborate earlier research that the index effect is no longer significant for the S&P 500 and has weakened significantly for the Russell 1000 and Russell 2000. However, we find that the index effect is present in the global indices, particularly the MSCI World Small Cap and MSCI Emerging Markets indices. Security characteristics matter as well. The index effect is stronger for larger securities (relative to their index). We also find that the index effect appears to hold further ahead—for instance, a month before the index rebalance date. TOPICS: Mutual fund performance, passive strategies, exchange-traded funds and applications Key Findings • The index effect is an important phenomenon that needs to be monitored, particularly by index managers. • The index effect varies greatly across indices; it is most present in global indices, particularly those covering small cap and Emerging Markets. • The potential value add is even higher if one can accurately predict and trade index changes ahead of the announcement.","PeriodicalId":36431,"journal":{"name":"Journal of Index Investing","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-11-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42042146","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Thematic exchange-traded funds have been growing in popularity. In this article, three children-oriented indices are constructed based on equal-weight (KIDSEW), price-weight (KIDSPW), and value-weight (KIDSVW) techniques, respectively. All three indices comprise thirty-nine companies that cater to children in some way. The performance of these three KIDS indices is compared with that of the S&P 500 Index from January 1, 2006, to January 1, 2019. Results in this article indicate that the KIDS indices consistently outperformed the traditional S&P 500 market index in both absolute and risk-adjusted terms. These indices can be used in advancing financial literacy in high schools and among parents, as they are easily understood because of their familiarity with composition and construction methods. TOPICS: Exchange-traded funds and applications, security analysis and valuation, performance measurement Key Findings • Children are a neglected or underrepresented segment of the thematic investment universe. • A thematic index wrapped in an ETF can produce above-market risk-adjusted returns. • Three KIDS indices described in this paper can bring more investors to firms that cater to children and enable financial literacy campaigns to educate children about the investment industry.
{"title":"KIDS Thematic Indices: Enabling Investors to Invest in Firms That Cater to Children","authors":"Rama K. Malladi","doi":"10.3905/jii.2019.1.075","DOIUrl":"https://doi.org/10.3905/jii.2019.1.075","url":null,"abstract":"Thematic exchange-traded funds have been growing in popularity. In this article, three children-oriented indices are constructed based on equal-weight (KIDSEW), price-weight (KIDSPW), and value-weight (KIDSVW) techniques, respectively. All three indices comprise thirty-nine companies that cater to children in some way. The performance of these three KIDS indices is compared with that of the S&P 500 Index from January 1, 2006, to January 1, 2019. Results in this article indicate that the KIDS indices consistently outperformed the traditional S&P 500 market index in both absolute and risk-adjusted terms. These indices can be used in advancing financial literacy in high schools and among parents, as they are easily understood because of their familiarity with composition and construction methods. TOPICS: Exchange-traded funds and applications, security analysis and valuation, performance measurement Key Findings • Children are a neglected or underrepresented segment of the thematic investment universe. • A thematic index wrapped in an ETF can produce above-market risk-adjusted returns. • Three KIDS indices described in this paper can bring more investors to firms that cater to children and enable financial literacy campaigns to educate children about the investment industry.","PeriodicalId":36431,"journal":{"name":"Journal of Index Investing","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-11-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48432970","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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