January, 2015 – InvestorLiterature.com Review
This Review is an update of the 2012(6) Review “Liquidity” which followed Roger Ibbotson’s great presentation at the CFA Society Toronto’s 2012 Annual Pension Conference. Subsequently Ibbotson and his team wrote an award winning article for the Financial Analysts Journal and presented their update at our Society’s 2014 Annual Investment Forum - again very well received. In this update we discuss the four factors: size, style, momentum and liquidity - of which liquidity ranks second to value over 40 years. We also note the risk of the four factors, the returns from combining pairs, and the returns of a regression of all four factors. Finally we show how the authors’ work meets William Sharpe’s criteria for style analysis. In summary we think the work of Ibbotson and his team is a very significant contribution to the existing field of factor analysis and is very valuable research.