Vanguard's misleading advertisement -- style momentum works
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Vanguard's misleading advertisement -- style momentum works beliavsky 10-21-2008
Posted by on October 21, 2008, 5:23 pm
Vanguard has an advertisement that says

"Simple truth: performance chasing is a losing investment strategy"

Apparently they are too lazy to test their statements before making
them, as the following paper on style momentum shows:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1276815
Using Style Index Momentum to Generate Alpha
Samuel L. Tibbs
East Carolina University - Department of Finance
Stanley G. Eakins
East Carolina University - College of Business
William DeShurko
401 Advisor, LLC
Journal of Technical Analysis, Forthcoming
Abstract:
Russell style indexes exhibit significant momentum, particularly after
medium term out- and underperformance. The existence of this momentum
produces a diversified, index-based low-cost means to exploit momentum
by incorporating relative style index performance into tactical
allocation strategies. Such style index momentum trading strategies
have outperformed on both a raw and risk-adjusted return basis, with
the long minus short portfolio generating an average 9.25% annual
return over the 34-year period analyzed. Although the excess returns
vary, they are robust through time and after controlling for
potentially confounding effects. Additionally, the returns are not
driven by any single style index and portfolio reconstruction is, on
average, required every six months.
Keywords: Momentum, Style Investing
JEL Classifications: G14

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Posted by Elle on October 21, 2008, 6:17 pm
> Vanguard has an advertisement that says
>
> "Simple truth: performance chasing is a losing investment
> strategy"
>
> Apparently they are too lazy to test their statements
> before making
> them, as the following paper on style momentum shows:
>
> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1276815

Full paper at
http://www.dorseywrightmm.com/downloads/hrs_research/2008DowAwardWinner.pdf

When the authors re-do their research to include transaction
costs, fund fees, taxes and so on, then what they find might
be interesting. Until then, their thesis has not been
tested.

--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.


Posted by Don on October 24, 2008, 6:22 pm
On 2008-10-21 14:23:43 -0700, beliavsky@aol.com said:

> Russell style indexes exhibit significant momentum, particularly after
> medium term out- and underperformance. The existence of this momentum
> produces a diversified, index-based low-cost means to exploit momentum
> by incorporating relative style index performance into tactical
> allocation strategies. Such style index momentum trading strategies
> have outperformed on both a raw and risk-adjusted return basis, with

That is such a clear, concise description of how to make money
investing in the stock market, it is hard to see how anyone who can
read plain English would fail to be convinced by it and would pass up
an opportunity for investment success by following those simple steps.

--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.


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