RR #213 – Expected Returns and Factor Investing

In today’s episode, we beg the question: is factor investing worth it? Factor-tilted portfolios tend to perform independently of the market and today, we break down a few of the characteristics associated with higher expected returns, as well as the…

In today’s episode, we beg the question: is factor investing worth it? Factor-tilted portfolios tend to perform independently of the market and today, we break down a few of the characteristics associated with higher expected returns, as well as the challenges of factor investing. We give a brief history of pricing moda">models and walk step-by-step through a hypothetical factor investment; taking the Fama and French five-factor model into account. Additionally, we discuss liability duration and bond returns and speculate whether pooling finances results in greater relationship satisfaction. Tune in to hear our take on everything from book clubs and the impact of inflation on consumption liability assumptions to our final verdict on whether factor investing is, in fact, worth your while.

Timestamps:
0:00 Intro
4:37 Discussion on Cam Harvey’s Crypto Ep.
10:23 Reviews
21:56 Cameron’s Book Recommendation
29:19 Pooling Finances and Relationship Satisfaction
31:34 Liability Duration and Recent Bond Returns
39:12 Is Factor Investing Worth It?

Participate in our Community Discussion about this Episode:
https://community.rationalreminder.ca/t/episode-213-expected-returns-and-factor-investing-discussion-thread/18536

Book From Today’s Episode:
Way of the Warrior Kid 3: Where there’s a Will… — https://amzn.to/3zJN6gy

Links From Today’s Episode:
Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/
Shop Merch — https://shop.rationalreminder.ca/
Join the Community — https://community.rationalreminder.ca/
Follow us on Twitter — https://twitter.com/RationalRemind
Follow us on Instagram — @rationalreminder
Benjamin on Twitter — https://twitter.com/benjaminwfelix
Cameron on Twitter — https://twitter.com/CameronPassmore
‘Podcast Guests Are Paying Up to $50,000 to Appear on Popular Shows’ — https://www.bloomberg.com/news/articles/2022-08-03/podcast-guests-can-pay-big-money-to-be-on-top-shows
‘Pooling Finances and Relationship Satisfaction’ — https://static1.squarespace.com/static/55f0b7a4e4b09dbc6cb88499/t/62338c02b9c68e13c12e45bb/1647545347300/PSP-I-2021-0326+%281%29.pdf
‘Canadian pension plans see improved financial health, despite volatile markets’ — https://www.theglobeandmail.com/business/article-canadian-pension-plans-see-improved-financial-health-despite-volatile/
‘Size matters, if you control your junk’ — https://www.sciencedirect.com/science/article/pii/S0304405X18301326#:~:text=Small%20quality%20stocks%20significantly%20outperform,simply%20raise%20the%20size%20premium.
‘Settling the Size Matter’ — https://jpm.pm-research.com/content/early/2020/11/04/jpm.2020.1.187.abstract
‘A Wealth Management Perspective on Factor Premia and the Value of Downside Protection’ — https://jpm.pm-research.com/content/43/3/33.short
Volatility Lessons’ — https://www.cfainstitute.org/en/research/financial-analysts-journal/2018/faj-v74-n3-6
‘Model Comparison with Transaction Costs’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805379
‘Is There a Replication Crisis in Finance?’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3774514
‘Does Academic Research Destroy Stock Return Predictability?’ — https://onlinelibrary.wiley.com/doi/10.1111/jofi.12365
‘Which Alpha?’ — https://academic.oup.com/rfs/article-abstract/30/4/1316/2758634
‘Choosing factors’ — https://www.sciencedirect.com/science/article/abs/pii/S0304405X18300515