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Rekenthaler Report

What Investment Factors Work for Stocks?

Volatility, size, and momentum, say Morningstar's quantitative researchers.

Narrowing the Field
This March, I wrote about the most extensive research on investment factors that has even been conducted. Two professors at Erasmus University of Rotterdam collaborated with a Dutch asset manager, Robeco, to evaluate how six factors--1) trend, 2) momentum, 3) value, 4) carry, 5) seasonality, and 6) betting against beta--have performed in various countries, for various assets (stocks, bonds, commodities, and currencies), for periods that extended as far back as 1799.

Broadly speaking, everything succeeded. Each item improved total returns for most asset classes, in most countries, over most periods. Admittedly, knowing such a thing is different than profiting from it: Often, transaction costs would have consumed the theoretical gains from employing such strategies. Nonetheless, it's helpful to understand the long-term influences on stock prices.