Margaret Stumpp Volume 11, Number 3, Third Quarter 2013 This paper examines the gender distribution of key investment professionals with decision making and oversight authority in institutional equity management. We find that women are heavily underrepresented among almost all key positions not just within portfolio management. We find no evidence that this is attributable to… Read more
Archives
Demystifying Managed Futures
Brian Hurst, Yao Hua Ooi and Lasse Heje Pedersen Volume 11, Number 3, Third Quarter 2013 We show that the returns of Managed Futures funds and CTAs can be explained by time series momentum strategies and we discuss the economic intuition behind these strategies. Time series momentum strategies produce large correlations and high R-squares with… Read more
Generating Superior Performance in Private Equity: A New Investment Methodology
S.P. Kothari, Gitanjali Swamy and Konstantin Danilov Volume 11, Number 3, Third Quarter 2013 This paper provides a new investment methodology for private equity portfolios that applies principles of investment management used in traditional asset classes. We apply Modern Portfolio Theory (MPT) with rational selection of portfolios that are on the efficient frontier of risk-reward… Read more
LIBOR Versus OIS: The Derivatives Discounting Dilemma
John Hull and Alan White Volume 11, Number 3, Third Quarter 2013 Traditionally practitioners have used LIBOR and LIBOR-swap rates as proxies for risk-free rates when valuing derivatives. This practice has been called into question by the credit crisis that started in 2007. Many banks now consider that overnight indexed swap (OIS) rates should be… Read more
SURVEYS AND CROSSOVERS: Value of Corporate Control: Some International Evidence
Paul Hanouna, Atulya Sarin and Alan C. Shapiro Volume 11, Number 3, Third Quarter 2013 Existing literature shows that the market values control because controlling shareholder can generate private benefits and improve the efficiency of the corporation. In this study, we provide a measure of the value of control for a set of domestic and… Read more
PRACTITIONER’S DIGEST
Volume 11, Number 3, Third Quarter 2013 View PDF… Read more
BOOK REVIEWS: The Most Important Thing – Uncommon Sense for the Thoughtful Investor
Volume 11, Number 2, Second Quarter 2013 The Most Important Thing – Uncommon Sense for the Thoughtful Investor Howard Marks Reviewed by Javier Estrada View PDF… Read more
CASE STUDIES: The Dividend Decision
Jack L. Treynor Volume 11, Number 2, Second Quarter 2013 View PDF… Read more
VarGamma Stress Tests
Kent Osband Volume 11, Number 2, Second Quarter 2013 Standard financial stress tests are ad hoc. They offer no guidance on how to select the target stress levels, how to adjust for randomness within crisis, or how to integrate the results with other risk measures. The VarGamma metric introduced by Osband (2013) offers an appealing… Read more
Mutual Fund’s Net Economic Alpha: Definition and Evidence
Sharon Garyn-Tal and Beni Lauterbach Volume 11, Number 2, Second Quarter 2013 It is sometimes argued that existing methodologies for assessing mutual fund’s performance are unfair, as fund’s return is taken net of expenses and benchmark return is gross of expenses. Examining over 1000 U.S. non-specialized mutual funds in 2001-2009, we find that the abovementioned… Read more
Approaches to Improving Bank Share Value Using Credit Portfolio Management and Credit – Transfer Pricing
Jeffrey R. Bohn and Roger M. Stein Volume 11, Number 2, Second Quarter 2013 Prudent credit risk management within a bank requires that a number of agents within the firm communicate, agree and act in a concerted fashion to manage credit risk both at the individual exposure level and at the broader portfolio level. This… Read more
When Sell-Side Analysts Meet High-Volatility Stocks: An Alternative Explanation for the Low-Volatility Puzzle
Jason C. Hsu, Hideaki Kudoh and Toru Yamada Volume 11, Number 2, Second Quarter 2013 Using a global equity dataset that includes emerging markets, we confirm that high-volatility stocks tend to deliver low average returns; this effect is robust to adjustments for country and style factors. We also show that sell-side analysts earnings growth forecasts… Read more
Price Inflation and Wealth Transfer During the 2008 SEC Short-Sale Ban
Lawrence E. Harris, Ethan Namvar and Blake Phillips We estimate that the ban on short-selling financial stocks imposed by the SEC in September 2008 led to price inflation of 10-12% in the banned stocks based on a factor-analytic model that extracts common valuation information from the prices of stocks that were not banned. This inflation… Read more
PRACTITIONER’S DIGEST
Volume 11, Number 2, Third Quarter 2013 View PDF… Read more
BOOK REVIEWS: Finance and the Good Society
Volume 11, Number 1, First Quarter 2013 Finance and the Good Society Robert J. Shiller Reviewed by Bruce Grantier View PDF… Read more
CASE STUDIES: Marginal Propensity to Consume
Jack L. Treynor Volume 11, Number 1, First Quarter 2013 View PDF… Read more
Put Option Exercise and Short Stock Interest Arbitrage
Kathryn Barraclough and Robert E. Whaley Volume 11, Number 1, First Quarter 2013 U.S. exchange-traded stock options are exercisable before expiration. While put options should frequently be exercised early to earn interest, they are not. In this paper, we explain an early exercise decision rule and then examine actual exercise behavior during the period January… Read more
VarGamma: A Unified Measure of Portfolio Risk
Kent Osband Volume 11, Number 1, First Quarter 2013 Most portfolio risk analysis implicitly assumes that risks are stable, despite copious evidence of instability. This article presents an alternative, VarGamma, that provides neat formulas for certainty equivalents (risk-adjusted returns) even with stochastic volatility and volatility-dependent drift. VarGamma measures are far more flexible and robust than… Read more
Stock Strategies with the January Barometer and the Yield Curve
Licheng Sun, Chris Stivers and Ajay Kongera Volume 11, Number 1, First Quarter 2013 The January Barometer states that the sign of the stock-markets returns in January can predict the subsequent 11-month stock-market return over February to December. Cooper et al. (2010) show that the best way to use the January Barometer is to be… Read more
Investing in What You Know: The Case of Individual Investors and Local Stocks
Mark S. Seasholes and Ning Zhu Volume 11, Number 1, First Quarter 2013 This paper tests the performance of individuals’ equity investments. We study over 40,000 accounts and 950,000 trades from a large discount broker. Individuals invest heavily in local stocks and put 14% more into these stocks than a market-neutral portfolio would suggest. Using… Read more
Deconstructing Black-Litterman: How to Get the Portfolio You Already Knew You Wanted
Richard O. Michaud, David N. Esch and Robert O. Michaud Volume 11, Number 1, First Quarter 2013 The Markowitz (1952, 1959) mean-variance (MV) efficient frontier has been the theoretical standard for defining portfolio optimality for more than a half century. However, MV optimized portfolios are highly susceptible to estimation error and difficult to manage in… Read more
SURVEYS AND CROSSOVERS: Bayesian Modeling in Finance
Xiaojing Dong and Carrie H. Pan Volume 11, Number 1, First Quarter 2013 The Bayesian statistical method provides an alternative approach to study some of the classical problems in finance. In the existing finance literature, research that uses Bayesian econometrics is primarily in the area of asset pricing. Bayesian applications in corporate finance have been… Read more
PRACTITIONER’S DIGEST
Volume 11, Number 4, Fourth Quarter 2013 View PDF… Read more
SURVEYS AND CROSSOVERS: Structured Finance Deals: A Review of the Rating Process and Recent Evidence Thereof
Seoyoung Kim Volume 10, Number 4, Fourth Quarter 2012 View PDF… Read more
BOOK REVIEWS: On the Brink – Inside the Race to Stop the Collapse of the Global Financial System
Volume 10, Number 4, Fourth Quarter 2012 On the Brink – Inside the Race to Stop the Collapse of the Global Financial System Henry Paulson Reviewed by Javier Estrada View PDF… Read more