Charles E. Harris Volume 8, Number 3, Third Quarter 2010 From 1984 to 2008, I had the pleasure and privilege of serving as Chairman and CEO of Harris & Harris Group, LLC, a publicly traded venture capital firm based in New York. Upon my retirement, I decided to summarize lessons I learned in my 42… Read more
Archives
BOOK REVIEWS: Active Credit Portfolio Management in Practice
Active Credit Portfolio Management in Practice Jeffrey R. Bohn and Roger M. Stein Reviewed by Cel Kulasekaran View PDF… Read more
CASE STUDIES: Household Risk
Jack L. Treynor Volume 8, Number 2, Second Quarter 2010 View PDF… Read more
Quantifying Systemic Risk and Reconceptualizing The Role of Finance for Economic Growth
Dale F. Gray, Andreas A. Jobst and Samuel W. Malone Contingent claims analysis (CCA) has formed part of the core of modern financial theory since the early 1970s as basis for many credit risk measurement methods. The adaptation of CCA for the measurement and analysis of systemic risk that arises due to the cross-exposures of… Read more
Warning: Physics Envy May Be Hazardous to Your Wealth!
Andrew W. Lo and Mark T. Mueller The quantitative aspirations of economists and financial analysts have for many years been based on the belief that it should be possible to build models of economic systems and financial markets in particular that are as predictive as those in physics. While this perspective has led to a… Read more
The Study of Crises
James H. Scott A study of financial crises can improve our understanding of theories, and of the relative strengths and weaknesses of different institutional arrangements. This article discusses four examples. (1) During the crisis, risk converged towards a global risk factor that dominated secondary risk factors. (2) Value is a secondary risk factor because it… Read more
The Future of Finance
Mark Kritzman The future of finance is bright, if for no other reason, because our financial system failed. This failure raises the level of urgency for developing more realistic models, more effective regulation, and more responsible financial institutions, and it permits us to start with a clean slate… Read more
INSIGHTS: The Inevitable Baggage We Display
Dean LeBaron Until the point at which investment models began melting, too many investment practitioners operated within a myopic belief system that failed to contemplate certain fundamentals that are rigorously observed in other scientific disciplines. Flaws crept into our research under various headings of convenient simplification, behavioral finance, and statistical tools. Biases influenced our work… Read more
BOOK REVIEWS: Guide to Investment Strategy: How To Understand Markets, Risk and Behaviour
Volume 8, Number 1, First Quarter 2010 Guide to Investment Strategy: How To Understand Markets, Risk and Behaviour Peter Stanyer Reviewed by Elroy Dimson View PDF… Read more
CASE STUDIES: Global Investing
Jack L. Treynor Volume 8, Number 1, First Quarter 2010 View PDF… Read more
Non-Normality Facts and Fallacies
David N. Esch Volume 8, Number 1, First Quarter 2010 Recently there has been an increasing trend in the quantitative finance community to call for statistical models which are explicitly model returns with non-normal probability distributions (e.g. Sheikh and Qiao, 2009, Bhansali, 2008, Harvey and Siddique, 2004). In this paper, we explain why summary rejection… Read more
New Directions in Financial Sector and Sovereign Risk Management
Dale Gray and Andreas A. Jobst Volume 8, Number 1, First Quarter 2010 The global financial crisis that began in 2007 has forced a re-examination of macroeconomics, financial economics, regulation, and risk management. Traditional macroeconomics overlooks the importance of risk which makes it ill-suited to analyze risk transmission, contagion and how risks can build up… Read more
Do Endowment Funds Select the Optimal Mix of Active and Passive Risks?
Keith C. Brown and Cristian Tiu Volume 8, Number 1, First Quarter 2010 The investment decision confronting managers of multi-asset class portfolios can be characterized in terms of the passive (i.e., benchmark or policy) and active (i.e., market timing and security selection) strategies they adopt. In this paper, we investigate whether managers select the appropriate… Read more
The Long View of Financial Risk
Lisa R. Goldberg and Michael Y. Hayes Volume 8, Number 1, First Quarter 2010 We discuss a practical and effective extension of portfolio risk management and construction best practices to account for extreme events. The central element of the extension is (expected) shortfall, which is the expected loss given that a value-at-risk limit is breached… Read more
INSIGHTS: Lessons on Investment Management From the Global Recession and Bear Market
Frank J. Jones Volume 8, Number 1, First Quarter 2010 The current global recession and financial crisis have significantly affected virtually all investment managers. The severity of the effects on investment management risk has induced many investment managers to reconsider their investment approaches in terms of investment management risk. This paper summarizes and evaluates many… Read more
BOOK REVIEW: The Ascent of Money: A Financial History of the World
Volume 7, Number 4, Fourth Quarter 2009 The Ascent of Money: A Financial History of the World Niall Ferguson Reviewed by Bruce Grantier View PDF… Read more
SURVEYS AND CROSSOVERS: Financial Applications with Parallel R
Sanjiv R. Das and Brian Granger Volume 7, Number 4, Fourth Quarter 2009 The use of statistical packages in finance has two functions. One, econometric analysis of large volumes of data, and two, programming financial models. A popular package for these purposes is R. In this article we will examine two canonical applications of parallel… Read more
CASE STUDIES
Volume 7, Number 4, Fourth Quarter 2009 Jack L. Treynor View PDF… Read more
Striking Regulatory Irons While Hot
Hersh Shefrin and Meir Statman Volume 7, Number 4, Fourth Quarter 2009 We are in the midst of what might end up as the most significant change to financial regulations since the Great Depression. This is because the financial and economic crisis that continues to engulf us is the most severe crisis since the Great… Read more
The Dynamics of Leveraged and Inverse Exchange-Traded Funds
Minder Cheng and Ananth Madhavan Volume 7, Number 4, Fourth Quarter 2009 Leveraged and inverse Exchange-Traded Funds (ETFs) have attracted significant assets lately. Unlike traditional ETFs, these funds have leverage explicitly embedded as part of their product design. While these funds are primarily used by short-term traders, they are gaining popularity with individual investors placing… Read more
The Risk That Risk Will Change
Robert F. Engle Volume 7, Number 4, Fourth Quarter 2009 Standard approaches to risk management focus on short run risks, yet many positions are held for longer periods. Over such holding periods there is a risk that risks will change. In this note several easily implemented approaches to estimating the term structure of risk are… Read more
INSIGHTS: The 7 Habits of Highly Suspicious Hedge Funds
Richard Bookstaber Volume 7, Number 4, Fourth Quarter 2009… Read more
BOOK REVIEW: The Logic of Life
Volume 7, Number 3, Third Quarter 2009 The Logic of Life Tim Harford Reviewed by Javier Estrada View PDF… Read more
SURVEYS: Managing Interest Rate Risk: The Next Challenge?
Sanjay K. Nawalkha and Gloria M. Soto Volume 7, Number 3, Third Quarter 2009 Are the managers of financial institutions ready for the small but increasingly significant risk of inflation in the near future, due to the unprecedented fiscal and monetary responses of the US government to prevent an economic collapse? This paper addresses this… Read more
CASE STUDIES: St. Xavior Parish Church
J. Peter Williamson Volume 7, Number 3, Third Quarter 2009 View PDF… Read more