Fama-French Factors and Business Cycles
Arnav Sheth and Tee Lim (Saint Mary’s College of California)
December 4, 2017
This study investigates the performance of Fama-French factors throughout different stages of business cycles, assessed through various methodologies. Initially, we categorize the business cycles into four distinct phases and analyze the cumulative returns for the factors during each phase. Next, we examine the factor behavior surrounding yield curve inversions, both at their onset and conclusion, as the correlation between yield curve inversions and recessions has been extensively documented. Lastly, we implement a logistic regression to evaluate the term spread’s effectiveness in forecasting the NBER recession indicator. Our findings indicate that each of the four phases influences the factors, but the recession probabilities exhibit limited predictive ability. This information holds practical significance for portfolio managers who prioritize a factor-based investment strategy.
Continue reading
House passes funding bill to prevent government shutdown, but Senate might block it: The Hill
International Energy Agency predicts US oil production to experience “explosive growth”: Bloomberg
Consumer Financial Protection Bureau’s acting director requests no funding: Politico
US housing starts dropped sharply in December but showed solid gains for 2017: WSJ
US jobless claims fell to the lowest level since 1973: Bloomberg
US Treasury yields hit their highest levels since 2014: Reuters
Scientists document a century-long increase in global temperatures: NY Times
There may be a global savings glut at play, or perhaps lingering fears among international investors are driving a consistent inflow into safe-haven Treasuries despite stronger economic activity.
Continue reading
GOP approaches resolution to prevent government shutdown, but risks persist: The Hill
Turkey may take action in Syria unless the US withdraws support for Kurdish forces: Reuters
US industrial production surged by 0.9% in December: USA Today
Housing Market Index in the US dipped in January after reaching an 18-year high: HousingWire
Fed Beige Book: US economy and inflation are growing at a modest to moderate pace: CBS
Professor Barry Eichengreen warns that the Fed is unprepared for the next recession: Japan Times
China’s official economic data may overstate the country’s growth rate: NY Times
Dow Jones Industrial Average closed above 26,000 for the first time: Wall Street Journal
The yield on the 2-year Treasury note has surpassed 2% for the first time in nearly ten years. This rate, often viewed as a benchmark for monetary policy expectations, climbed to 2.03% on Tuesday (Jan. 16), according to daily data from Treasury.gov. This increase, alongside a minor decline in the benchmark 10-year Treasury yield to 2.54%, has narrowed the widely observed spread between the 10-year and 2-year yields to 51 basis points, hitting the lowest point since 2007.
Continue reading
GOP plans temporary funding to keep the government operational beyond Saturday: USA Today
US Secretary of State discusses potential military action against North Korea: Bloomberg
Twenty-two states file lawsuits against the federal government regarding the net neutrality repeal: The Hill
World Economic Forum survey indicates rising political and economic risks: Reuters
NY Fed Manufacturing Index shows slight growth decrease in January, but remains strong: NY Fed
Will escalating oil and currency prices compel the ECB to tighten monetary policy? Bloomberg
Bitcoin and other cryptocurrencies experience significant price drops: CNBC
Median one-year consumer inflation expectations reached a ten-month high in December: NY Fed
The excitement in the recent US stock market may or may not be misguided, but the enthusiasm in the value sector of equities (companies priced inexpensively) is lackluster compared to the dramatic rally in growth stocks (firms anticipated to exceed market growth rates). Despite both segments of large-cap companies posting robust gains, the disparity favoring growth has become notably pronounced in recent times.
Continue reading
The risk of a US government shutdown escalates as the January 19 deadline approaches: CNN
Turkey’s president warns of offensive against US-aligned rebels in Syria: Reuters
Oil prices reach a three-year high, driven by global growth and production cuts: Reuters
Wall Street anticipates higher inflation in 2018: Bloomberg
Research suggests a single actor significantly influenced Bitcoin’s price surge from $150 to $1000: TechCrunch
China intensifies its crackdown on Bitcoin: CNBC
Boeing reveals design for a supersonic aircraft capable of speeds up to Mach 5: Fox
US policy uncertainty is on the rise: Econobrowser
US equities outperformed most markets last week, achieving the highest gains among the major asset classes, as derived from a range of exchange-traded products. Conversely, real estate investment trusts (REITs) in the US registered the largest weekly loss, continuing a downward trend for this yield-sensitive sector in light of rising Treasury yields.
Continue reading
Prospects for a US immigration deal diminish following Trump’s comments: Fox
Thousands evacuate in the Philippines due to warnings of an impending volcano eruption: CNN
Hawaii issues a false alarm about a missile attack: New York
The euro has reached a three-year high against the US dollar: Reuters
US retail spending increased by 0.4% in December, aligning with expectations: RTT
Core consumer inflation in the US rose in December, marking the largest increase in eleven months: Reuters
November business inventories in the US saw the largest rise since August: Dow Jones
China’s retail sales are expected to equal US spending in 2018: WaPo
