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I ran the 4-Factor Model on the new CRSP indexes a while back. They are very similar to the MSCI index in terms of the SMB/HML exposure.

That is a very interesting theory, and worth exploring in more detail. It is like benching your star athelete so they can't get much money in free agency.

Thanks a lot for the replays. This was a great help for me as I did not find all this info from a google scholar search.

I am doing a research project for school.

Does anyone know about any papers/articles that address the difference in performance of funds with a single manager and funds with a multi-manager set up?

Thanks for the help.

Does it really matter what the countries are like?

There is the story-time approach that accomplishes nothing.

There is the efficient market approach that says the market knows all of these things and it will be incorporated into the price.

I agree with you that there is a fun aspect to holding this fund. I also think there is a obvious diversification benefit aspect to holding this fund, and it is always nice when there is an asset has the potential to increase both your Return, and simultanously lower your portfolio risk (sort of lik...

For what its worth, over the meager 6th months of its existance, the fund returns have only trailed the index's returns by 0.23%

Smartmonkey. Thanks for the replay. It is much more constructive to discuss a paper with its author. Per my intellectually dishonest comment, and your subsequent response. "where is the fun in that?": The fun in that is accurately and honestly present your results. It is fine to not presen...

Well, it seems to me that if just eliminating the 20-30% of the Highesr ER active funds from the selection pool would change the odds of indexing outperforming to less than 50%, that would be pretty easy to do. This is why I am questioning if the 20% number or even a 50% number has been shown to be...

I skimmed through the paper so correct me if I am wrong. But the first thing I would do if I wanted to know if one index construction method was better than the other would be to run 4 Factor regression (MKTRF SMB HML UMD) and see what the alphas looked like. Because of the mentioned liquidity issue...

#1) Historically and probably going forward. Small cap beats large cap. So by moving away from a market-cap weighting you are increasing you loading on the small cap stocks, and thus increase expected returns. So the finding is not a surprise. #2) Trading Costs. A Market-cap weighted system involves...

I would advise against RZV. The issue is that while it is smaller and has more value exposure than other ETFs, it has tremendous negative exposure to the momentum factor (UMD). ETF, SMB, HML, UMD RZV 0.900 1.091 -0.299 IJS/VIOV 0.608 0.605 -0.063 VBR 0.572 0.484 -0.047 IWN 0.778 0.512 0.017 The mome...

This story telling doesn't get you anywhere in terms of making actionable investment decisions. The relevant issues are: What is the expected return of asset? What is the riskiness of the asset? How does the asset's risks co-vary with other assets in your portfolio? Per this Vanguard report: https:/...

0.79 ER doesn't seem unreasonable given the context. Small cap EM has about that ER, as does Microcap. I would take FM anyday over Microcaps, and think it would be comparable to emerging market small cap in terms of expected return and correlations. With that said the 2-3% upfront haircut is the dea...

Larry. Nice article. Two questions: 1) Why did you use the European Market and not EAFE Market in your chart of valuation ratios? It raises an unnecessary question mark. 2) How high would you go with international weighting. I am at 50%, but even that is underweight market portfolio. So if you were ...

Pauliec84, I would appreciate an analysis of your data. I sometimes think I understand the numbers but obviously, I don't . In my company's profit sharing account, the international allocation is Vanguard Total International index 50%, GWX ( S& P international small cap ETF) 25% and DLS (Wisdom...

Here are some factor loadings a ran when I was deciding how to get value internationally. Note, you can't do factor analysis on emerging market as Fama French Data Library does not have loadings for those markets. Fund ALPHA mktrf smb hml umd HEDJ 0.000 0.641 -0.638 0.424 -0.083 FDT -0.004 1.304 0.8...

I don't think we should dismiss something out of hand. Per Data-mining Argument: Does the strategy work out of sample? YES Table 2, performed on stocks from developed markets outside the US, including those from Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Great Britain, H...

Tilts 1. 5% of anything (esp. a small value index that isn't that small or value oriented) isn't mild, its a waste of time. So we can cross that off the list. 2. 75% TSM, 25% S&P 600 Value has only about 0.15 sensitivity to size and value. At the historical 2% and 4% premiums, that is less than...

No need to give up. Take a crack at a little reading.

Chan_va

I would say most people (including myself) think it is not a free lunch. It is simply a risk not captured by volatility (or CAPM beta). Such as exposure to unemployment risk etc.

1. Am I understanding this right? Yes 2. If I am, then why would we expect this to continue in the future? Now that the research is public, shouldn't this be priced into the stocks going forward? This is rich debate in finance. One possible explanation is that risk is not completely captured by vol...

Thanks for the info. In that case, assuming the front running issue is no longer an issue for Russell 2000, that may be a better choice than VIOV.

Does anyone know about the current status of frontrunning of the Russell 2000?

Also, any idea what the new fees will be on the CRSP indexes?

I don't know much about some of these variables. I know what Alpha is, but not MrkRF, SMB, HML, and UMD. What are they? see http://www.bogleheads.org/wiki/Fama_and_French_Three-Factor_Model And how do those variables in CRSP SCV (in what will be VBR) compare to the other SCVfunds used by Bogleheads...

What about the change for the value index fund? I am confused that is what I posted. Do you mean growth funds? Is there a similar database for int'l equities as well? http://www.crsp.com/indexes/index-constituent-lists.html Here is the website. I don't really trust the international factor loads an...

Haha. You make a good point. Guess that is reason number 1000000 I am not in charge of vanguard.

In case anyone is interested I ran 4 Factor regressions on the new vanguard funds. The data is from the CRSP website, the sample period is Jully 2000 to end of 2011 Alpha, MrkRF, SMB, HML, UMD CRSP LCV 0.000 0.913 -0.201 0.225 -0.034 CRSP MCV 0.001 0.919 0.230 0.398 -0.051 CRSP SCV 0.001 0.909 0.572...

I think it is because the S&P 600 Value Fund, VIOV gives you a similar tilt with lower expense ratio vs Russell 2000 value. There is also this front running issue. That has scared me from it. Here are the 4 factor loadings from the funds that folllow each index (VBR, IJS/VIOV, IWN/VTWV) VG ER, F...

For what its worth Russel 2000 Value is more Valuey and Smaller than VBR. So if that is what you are looking the 11 bp in terms of expense ratio per exposure to risk factor, you probably don't do any worse with the Russell 2000. There has been some talk about investors front running the Russell 2000...

This effectively raises the bid-ask spread of french stocks, which in turn should lower their liquidity.

This should cause investors to demand a higher risk premium (i.e., immediate price drop, long term expected higher return).

Yes this is very interesting. The numbers are so off it seems to reflect some weird aspect of the accounting. Especially as reits have not had some sort of wild runnup. There returns have been consistant with other small/valuey asset classets.

grap0013 wrote: Those are indirect concerns. VSS trails its index by about ~0.3%. PDN used to trail its index by about ~1%. With the ER reduction it should only trail it's index by ~0.7%. Difference ~0.4% between VSS and PDN. Let's say PDN's value factor load is 0.35 (which I think is resonable) an...

On the subject of PDN being not great...

PDN
Size: 1.703B
Price/Book: 0.94
Price/Earning: 11.64

VSS
Size: 1.242
Price/Book: 1.09
Price/Earning: 11.99

So slightly more value exposure, less small exposure.
One day there will be a real international small value out there

VIOX is thinly traded and often trades at a large premium/discount to NAV. In 2011, it traded at a premium/discount greater than 100 basis points more than 10% of the time. If you look at Q3 2011, you'll see the market price dropped less than the NAV and it entered Q4 2011 trading at quite a premiu...

I noticed that vanguard SCV and Emerging Market Fund are going to change indexes too.

Any idea how this is going to effect the smallness and value of the SCV, and the Smallness of the Emerging Market Fund?

If you assume you are going to pay a nasty bid-ask spread this can just be thought of as part of the transaction cost and in my opinion not necessarily a risk. We are talking about stocks, not exotic securities where there may not be a buyer. there are probably 5000 OTC stocks out there that typica...

A good example of liquidity risk was the financial crisis in 2008 when just about everything that wasn't highly liquid (and highly safe) was selling at a discount, for example TIPS compared to similar nominal treasuries. Those are hardly exotic securities. Again that is one type of liquidity, more ...

The risk is that you want to sell immediately and you can't get full price. If you have a safe liquid asset, you can do that. That is one type of liquidity risk. If you assume you are going to pay a nasty bid-ask spread this can just be thought of as part of the transaction cost and in my opinion n...

I can't speak to the paper, however there are many different measures of liquidity. From bid-ask spread (which is what classic paper amihud mendelson (1985) use) to more sophisticated measures that are more like a Liquidity Beta which measures how the liquidity of the firm changes relative to market...

I always thought very rational for a fund company to offer funds that take advantage of the liquidity premium, especially in 401Ks where the money is locked up anyway until retirement. To implement appropriately you would need a closed end fund structure to avoid redeeming issues. I feel like of all...

To my knowledge Bridgeway Omni Small Cap Value fund (BOSVX), which is NOT available to retail investors.

Fair point about post for general public. Per MOM Loads: VIOV MOM = -0.017 VBR MOM = -0.081 DFSVX MOM = -0.030 So not so much different, although I do agree I would expect DFSVX to be more momentum neutral do to the scientific nature of their screens. Unrelated have you seen this paper: http://subra...

Note if you subtracted securities lending revenue the expense gap would be narrower And if you use the Admiral Shares instead of the Investor shares for Vanguard the gap would be even wider... I am surprise you didn't structure your analysis as an (Factor Exposure/Expense Ratio). If you goal is to ...

Per the OP if we are talking straight theory this falls within the Grossman-Stiglitz hypothesis: You would be in a situation where the cost of acquiring information is less than the benefit, and one of the people who where a boglehead would become an active trader and make lots of money. Grossman St...

pauliec84 wrote: Just because the risk is difficult to pinpoint quantitatively does not mean that it should be ignored. This is a great quote, I think - am I right about what I inserted (in red) being what you meant? Yes thats what I meant. pauliec84 wrote: All that the portfolio being undeversifie...

That would lead to the conclusion that you can't think of this business as ownership of an asset in a portfolio in the way we think of portfolios here, with some risk, some return, some location within an asset class universe and so on. I don't agree with this. Any asset, real or financial should b...

Do you have any competitors that are public companies? Any Micro-cap stocks that are in the same space? I think that trying to find a public comparable would be your best bet, but seems like that would be unrealistic.

grap0013, it is a real pain in the neck to convert monthly to early in excel, no easy way to do it to my knowledge.

Thanks for Link The RAFI SV MKTRF: 0.994 SMB: 0.862 HML 0.669 UMD (Momentum): -0.179 After accounting for the ER and Turnover I have an expected real retrun of 8.2%. Not Bad but... That is the same as VBR and less than VIOV/IJS. So you are taking more risk on in the factor loadings for the same expe...

If you can get your hands on them (need month over month), I would be happy to run some fama french regressions on them to figure out the factor loads.