In empirical tests of the CAPM, the theoretical risk-free asset is typically assumed to be 1-month Treasury bills. This paper examines the implications of a mis-specified risk-free asset, i.e. the possibility that the ‘true' risk-free asset is a longer-maturity Treasury bond. A simple...

This paper makes a breakdown of common Fama-French style equity factor portfolios into their long and short legs. We find that factor premiums originate in both legs, but that (i) most added value tends to come from the long legs, (ii) the long legs of factors offer more diversification than the...

Many believe that investors can contribute to a more sustainable world by divesting from firms with the worst sustainability profiles. However, exclusion comes down to a transfer of ownership from sustainability-minded investors to other investors, and it is not obvious how this is supposed to...

Many investors do not want to finance morally objectionable activities with their money, such as smoking. But is investing in the shares of tobacco companies the same as financing the tobacco business? Analyzing two decades of data we find that investors in tobacco shares have not provided any...

Exchange-traded funds (ETFs) are commonly regarded as an efficient, low-cost alternative to actively managed mutual funds, yet their perceived superiority is largely anecdotal. We evaluate the performance of a comprehensive, survivorship bias-free sample of US equity ETFs following the same...

High-risk stocks do not have higher returns than low-risk stocks in all major stock markets. This paper provides a comprehensive overview of this low-risk effect, from the earliest asset pricing studies in the nineteen seventies to the most recent empirical findings and interpretations since....

The factors in the widely used Fama-French model experienced a negative average return over the 2010-2019 period. Perhaps surprisingly, such a lost decade is not unprecedented in history, as factor performance in the 2010s is, in fact, remarkably similar to factor performance in the 1990s. By...

We propose a practical investment framework for dynamic asset allocation across different economic regimes, which we illustrate using a sample of U.S. data from 1948 to 2007. We identify four regimes in the economic cycle and find that these regimes capture pronounced time-variation in the risk...

By having the flexibility to take on short positions, so-called 130/30 funds provide classic beta exposure in combination with an enhanced potential for generating alpha. We discuss the main theoretical pros and cons of 130/30 investing and compare various ways in which 130/30 funds are being...