May 31, 2011
Videos

Investors tend to overweight their equity portfolios with stocks from their home country market. Ken French says that, while home bias is still the norm, investors have significantly increased their allocation to foreign markets over the last 30 years. He explains that investors might overweight their home market for economic reasons, perhaps to hedge consumption risk or to offset tax disadvantages they suffer in some foreign markets. Home bias can also be driven by behavioral factors. For example, investors may overweight their home country because of their uncertainty (the unknown unknowns) about foreign markets, or because they are overconfident about picking stocks in their home market. Ken says the best approach is to start with a global market portfolio, then make adjustments based on personal preference. 

(View the video)

 
May 16, 2011
Videos

Should retirees limit their spending to the interest and dividends they receive? Ken French says investors should be indifferent to how they raise cash, whether through dividends and interest, or through the sale of shares--a method Merton Miller called "homemade dividends." Despite the economic logic, some investors focus on dividends and interest. While this approach may encourage disciplined spending, Ken explains that it also can distort one's investment approach--for example, when investors choose dividend-paying stocks over broad diversification, or chase higher yields by holding riskier bonds. In an effort to get more, they actually lose. 

(View the video)

 
May 2, 2011
Videos

Ken French says the simplest answer is found in the rate offered on a long-term Treasury Inflation Protected Security (TIPS). You can go beyond the TIPS rate if you don't plan to live forever. Retirees with a shorter life expectancy might choose to consume more. Finally, you might increase your expected investment return and your expected sustainable withdrawal rate by taking more risk. But Ken warns that the expected return and the return you ultimately receive could be very different. That is the nature of risk.

(View the video)

 
Apr 18, 2011
Videos

Can investors build a better portfolio by combining asset classes that have low correlations? It is possible, explains Ken French, but not in the way that most investors attempt it. Some think they can enhance diversification by eliminating mid caps and concentrating on only large and small cap stocks because these asset classes are less correlated. Ken explains that portfolio variance is determined not only by correlation, but also by variance of the individual asset classes and, critically, by their weighting in the portfolio. He emphasizes that throwing out mid caps is equivalent to doubling up on the risk of large and small caps, which is the opposite of diversification.

(View the video)

 
Dec 22, 2010
Videos

Can principal-guaranteed products help an investor better manage portfolio risk? Ken French explains that principal protection would certainly be attractive if it were free. Unfortunately for investors, it is not. French discusses potential problems with principal-guaranteed products and argues that before purchasing these instruments investors should consider portfolio solutions that are simpler, transparent and more cost effective.

(View the video)

 
Dec 8, 2010
Videos

Rising government spending around the world has many investors considering ways to hedge potential inflation, which may include holding TIPS or rolling over short-term Treasury securities. Ken French explains that investors can essentially eliminate inflation uncertainty by buying TIPS that mature when they want to consume. However, uncertainty about changes in real interest rates can make the choice harder for investors who will have to sell their TIPS before maturity.

(View the video)

 
Dec 1, 2010
Videos

In this video, Kenneth French explains why lower economic growth may not hinder future stock returns. In fact, history shows that average returns tend to be higher during periods of economic difficulty. The information about a current recession is factored into stock prices, and investors may require a higher expected return to induce them to take higher perceived risk. 

(View the video)

 
Nov 16, 2010
Videos

EFF: I was interviewed on Bloomberg Television's "InsideTrack" this past Friday about the efficient markets hypothesis (EMH), financial regulation, and capital requirements for banks. 

(View the video)

 
Oct 4, 2010
Videos

This video, recorded at the Chicago Booth 2010 Management Conference, features Eugene Fama and David Booth providing insights into what lies ahead for active and passive money management.

(View the video)

 
Jun 1, 2010
Videos

EFF: I was interviewed on CNBC's "Squawk Box" this past Friday about the recent financial crisis and financial regulatory reform.

(View the video)

 
Oct 2, 2009
Videos

From the American Finance Association's "Masters in Finance" video series, Eugene F. Fama presents a brief history of the efficient market theory. The lecture was recorded at the University of Chicago in October 2008 with an introduction by John Cochrane. 

(View the video)

 
Sep 9, 2009
Videos

In an interview conducted by Professor Richard Roll, famed University of Chicago economist Eugene F. Fama discusses his life, research, and contributions to the field of finance. Produced by Dimensional in conjunction with the American Finance Association. Directed and edited by Gene Fama Jr.

(View the video)

 
Aug 11, 2009
Videos

Widely cited as the father of the efficient market hypothesis and one of its strongest advocates, Professor Eugene Fama examines his groundbreaking idea in the context of the 2008 and 2009 markets. He outlines the benefits and limitations of efficient markets for everyday investors and is interviewed by the Chairman of Dimensional Fund Advisors in Europe, David Salisbury.

(View the video)

 
Jul 14, 2009
Videos

The answer depends on why stockholders want to leave the market. During the financial crisis, some investors discovered that their tolerance for risk is lower than they thought, so it might make sense for them to permanently reduce their exposure to equities. Investors who wish to avoid the price impact of the recession, however, are probably too late. Today's stock prices already reflect the anticipated effects of the slowdown, as well as any effects the recession has on expected future returns.

(View the video)

 
Jul 8, 2009
Videos

Investors may doubt the usefulness of diversification after the recent market decline. In this video, Kenneth French explains that diversification cannot reduce the volatility of the overall market, but it is still important because it reduces the risk associated with individual firms or asset classes. He also discusses the perception that correlations between assets rise when market volatility is high.

 
Jun 23, 2009
Videos

Does it make sense to dollar cost average? It depends. Standard financial analysis says dollar cost averaging is suboptimal. If you focus on only your investment outcome, investing a lump sum immediately lets you construct the best portfolio you can today; slowing the process with dollar cost averaging just keeps you in something other than your best portfolio until you are done. Behavioral finance provides a different perspective. Because of the difference between the way people react to errors of omission and errors of commission, dollar cost averaging may give investors a better expected investment experience. 

 
Jun 17, 2009
Videos

Although it would be great if we could all hire above average active managers, that only happens in Lake Wobegon. Superior managers may exist, but most investors might as well be picking their managers at random. I describe the challenge of differentiating luck from skill, and explain how intense competition among investors makes the problem even more difficult.

 
Jun 9, 2009
Videos

KRF: I explain why active investing is always a negative sum game. We often hear that now is a good time (or a bad time) for active investing. That does not make sense. In aggregate, active investors always underperform by their fees and expenses.

 
Jun 9, 2009
Videos

KRF: What does it mean to say there is a flight to quality? For every seller there must be a buyer. After exploring this simple point, I explain how expectations about future cashflows and future returns affect the current price.

 
ABOUT FAMA AND FRENCH
Eugene F. Fama
The Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business
Kenneth R. French
The Roth Family Distinguished Professor of Finance at the Tuck School of Business at Dartmouth College
SECTIONS

CATEGORIES
Economic Policy (4)
Academics (6)
Investments (3)
Market Efficiency (4)
Financial Markets (2)
Diversification (1)
Behavioral Finance (1)
SEARCH
Enter a word or phrase to search for.
SUBSCRIBE
Enter your e-mail address to receive updates.
This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily Dimensional Fund Advisors and does not represent a recommendation of any particular security, strategy or investment product. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Dimensional Fund Advisors Ltd. is authorised and regulated in the United Kingdom by the Financial Services Authority (FRN: 150100), is registered in England and Wales under Company No. 02569601 and VAT No. 577327607. The registered office address of Dimensional Fund Advisors Ltd. is 7 Down Street, London, W1J 7AJ, United Kingdom. Dimensional Fund Advisors Ltd. is a subsidiary of Dimensional Fund Advisors.