Vol. 19, No. 4, 2021 Peter Easton, Stephannie Larocque and Jennifer Sustersic Stevens We examine the effect of ASC 820 (formerly SFAS 157) on valuations reported by US private equity funds to their investors. In 2008, the FASB implemented ASC 820 to achieve more consistent measurement and increased transparency in fair value reporting. This new… Read more
the JOIM
Horizon-Adjusted Portfolio Performance Measure
Vol. 19, No. 4, 2021 Yoram Kroll and Moshe Ben-Horin This paper presents a portfolio performance measure that accounts for the investment horizon assuming both risk and loss aversion as suggested by Tversky and Kahneman’s CPT framework. The optimal portfolio risk premiums of such investors decrease with the length of the investment horizon and our… Read more
Practitioner’s Digest
Vol. 19, No. 3, 2021 Practitioner’s Digest View PDF… Read more
Book Review: The Premonition
Vol. 19, No. 3, 2021 By Michael Lewis (Reviewed by Javier Estrada) View PDF… Read more
A Market Signal-Based Alternative to Buy-and-Hold Investing
Vol. 19, No. 3, 2021 Atanu Saha and Yong Xu We propose a simple, hindsight-free, rule-based method of entry and exit into the stock market, with the goal of improving returns by averting large losses. Using data from 1928 through March 2020, we demonstrate that the proposed strategy delivers statistically significant outperformance over the S&P… Read more
Advances in Estimating Covariance Matrices
Vol. 19, No. 3, 2021 Jose Menchero and Lei Ji Correlation matrices are widely used in finance both for risk forecasting and for portfolio optimization. It is well known that the sample correlation matrix is unreliable for portfolio optimization. However, we show that for purposes of predicting portfolio risk, the sample correlation matrix is close… Read more
On the Use of the Daily Fama–French Risk-Free Rate
Vol. 19, No. 3, 2021 Joshua C. Fairbanks, Mark D. Griffiths and Drew B. Winters The Fama and French (1992) risk-free rate is used throughout the extant finance literature. The daily risk-free series has issues that raise concerns about its use as a benchmark. We detail the issues and discuss viable low-cost alternatives. We suggest… Read more
Long-Run Implied Market Fundamentals: An Exploration
Vol. 19, No. 3, 2021 Heinz Zimmermann The paper studies the volatility and correlation pattern of the fundamental valuation parameters (growth rate and its determinants, discount rate) calculated from widely used valuation ratios using the Gordon formula, and compares the findings to well-known insights from the asset pricing literature. Our results reveal a substantially different… Read more
A New Index of the Business Cycle
Vol. 19, No. 3, 2021 William Kinlaw, Mark Kritzman and David Turkington The authors introduce a new index of the business cycle that uses the Mahalanobis distance to measure the statistical similarity of current economic conditions with past episodes of recession and robust growth. Their approach has a key advantage compared to approaches that simply… Read more
The Fully-Anticipated P/E Promise and Its Realization
Volume 18, No. 1, 2020 Martin L. Leibowitz, Stanley Kogelman, and Anthony Bova In this paper, time paths of P/Es are projected, by applying a theoretical model in which the totality of “fully anticipated” future “franchise” investments serve as the source of higher P/Es. At the outset, the P/E path slowly ascends until the first… Read more