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Predicting Returns Using Behavioral Market Barometers

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The Journal of Investment Consulting | Volume 21, Number 1, 2022


Recipient of the 2023 Journal Research Award

The Journal Research Award honors the author(s) of an original article representing the best writing for the previous year, is germane to investment consulting and/or private wealth management, and was published in the Journal of Investment Consulting or the Retirement Management Journal.

The 2023 recipient is C. Thomas Howard, Ph.D., for his article, “Predicting Returns Using Behavioral Market Barometers,” which appeared in the Journal of Investment Consulting. Howard is Professor Emeritus at the Reiman School of Finance, Daniels College of Business, University of Denver and Chief Executive Officer and Chief Investment Officer at AthenaInvest, Inc.  Link to Announcement


Abstract

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Harnessing Behavioral Factors in the Investment Process: Behavioral Factors for Picking Equity Managers and Stocks

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Investments & Wealth Monitor | September/October 2019 Issue


Abstract

Behavioral finance is sweeping through the financial services industry. Financial advisors are the furthest along, introducing these concepts into their practices, including needs-based planning, outsourcing non-core activities such as investment management, and creating a reassuring behavioral experience for clients.

The advisors who have made this transition, according to a recent report by Cerulli Associates, grow faster and end up with wealthier, more loyal clients.1 Such a transition allows advisors to provide client value relative to their robo-advisor and index fund competition, as confirmed by Vanguard, Russell Investments, and others.2 Howard and Bunker (2018) provide a blueprint for transitioning to this type of advisory model.

Active equity investment managers face a challenge not unlike that faced by advisors, with large outflows over the past 10 years, roughly matched by low-cost index fund inflows. Active equity must deliver value relative to index offerings. I believe the best way to accomplish this is to harness behavioral factors in each aspect of the investment process, similar to how successful advisors have incorporated behavioral factors throughout their practices. Some of the material in this article is drawn from Howard and Voss (2019).

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