Premium timing simulations
Filters were applied to data retroactively and with the benefit of hindsight. Returns are not representative of indices or actual strategies and do not reflect costs and fees associated with an actual investment. Actual returns may be lower. The excess return of a trading rule is equal to the difference in average return between the rule and the long side of the premium that the rule is applied to. Data sources: CRSP and Compustat data for US firms listed on the NYSE, AMEX, or NASDAQ, and the historical book equity data in Kenneth French’s data library (http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html). The trading rules include nonparametric trading rules comparing valuation spreads to their historical distribution, linear trading rules based on the linear models predicting premiums based on valuation spreads, and logit trading rules based on the probability of a future premium being positive. Results will vary with each use and over time. For more information, please refer to Dimensional’s white paper “Premium Timing with Valuation Ratios,” available upon request.
Fama/French Total US Market Research Index: July 1926–present: Fama/French Total US Market Research Factor + One-Month US Treasury Bills. Source: Kenneth French website.
Results shown during periods prior to each index’s index inception date do not represent actual returns of the respective index. Other periods selected may have different results, including losses. Backtested index performance is hypothetical and is provided for informational purposes only to indicate historical performance had the index been calculated over the relevant time periods. Backtested performance results assume the reinvestment of dividends and capital gains.
Source: Dimensional, using CRSP and Compustat data. The eligible universe includes all firms in the US excluding REITs, tracking stocks, and investment companies.
Following Peters and Taylor (2017),6 internally developed intangible capital for each firm at a point in time is estimated by accumulating the historical spending on research and development (R&D) and a fraction of selling, general, and administrative (SG&A) expenses while amortizing it at constant rates.
Simulated strategy returns based model/back-tested performance. These are not live strategies managed by Dimensional Fund Advisors LP or any of its affiliates. The performance was achieved with the retroactive application of a model designed with the benefit of hindsight; it does not represent actual investment performance. Backtested model performance is hypothetical (it does not reflect trading in actual accounts) and is provided for informational purposes only. The securities held in the model may differ significantly from those held in client accounts. Model performance may not reflect the impact that economic and market factors might have had on the advisor's decision making if the advisor were actually managing client money. These strategies were not available for investment in the time periods depicted. Actual management of these types of simulated strategies may result in lower returns than the backtested results achieved with the benefit of hindsight. Past performance (including hypothetical past performance) does not guarantee future or actual results. The simulated performance shown is “gross performance,” which includes the reinvestment of dividends but does not reflect the deduction of investment advisory fees and other expenses. A client’s investment returns will be reduced by the advisory fees or other expenses it may incur. For example, if a 1% annual advisory fee were deducted quarterly and a client's annual return were 10% (based on quarterly returns of approximately 2.41% each) before the deduction of advisory fees, the deduction of advisory fees would result in an annual return of approximately 8.91% due, in part, to the compound effect of such fees.