Size Matters, if You Control Your Junk

This is a new research paper published on January 22nd 2015 that studies the return of stocks based upon the size (defined in multiple ways).  What was done differently than other studies, was that the authors used a Quality and Junk variable to apply to the data.  The result was that smaller firms outperformed larger firms in the stock market if the portfolio was controlled with the QMJ (Quality Minus Junk) factor.  Meaning that a lot of the smaller companies were “junk” but the ones that were of quality outperformed the market. The Authors: Clifford S. Asness – AQR Capital Management, LLC Andrea Frazzini – AQR Capital Management, LLC Ronen Israel – AQR Capital Management, LLC Tobias J. Moskowitz – University of Chicago – Booth School of Business Lasse Heje Pedersen -New York University (NYU) – Department of Finance; Copenhagen Business School; AQR Capital Management, LLC; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER) You can Download the Paper from the website here, or I have it posted on this site here.   One interesting finding was that a lot of the return of small companies resulted in the month of January: One of the biggest challenges researchers pose to…

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Smart Links from February 9th 2014

Word Science of Social Media is an infographic created by ShortStack which analyses the titles for highest social media sharing.  The infographic is broken down by Twitter, Facebook and Blog and displays the words in title that get that most shares.  A good read if you want to increase your social media shares. Value Investing goes Back to the Future discusses the apparent change in thinking of value investors (according to Barron’s Conway).  In recent years value investors were concerned with bankruptcy risk and book values but it appears that might have changed to forward-looking metrics like p/e ratios. Vitaliy Katsenelson is always a good read and this week he wrote an article titled What I learned at the Mall about Investing.  It’s a piece about looking back on past mistakes (to try to avoid in the future) with regard to the retail industry. Microsoft, Past and Future by Daring Fireball is an excellent synopsis of Microsoft and what it may hold for the future MicroCapClub wrote up a quick article that contains statistics on micro-cap stocks.  There are 18,726 public companies on all U.S. exchanges (including OTC), with 16,710 companies sporting market caps greater than $1m. Bloomberg’s huge cash…

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