Vol. 17, No. 4, 2019 Wenfeng Wu, George Xiang and Tong Yu Alternative index products often achieve improved performance at the cost of increased exposure to risk. In this study, we propose a portfolio tilting strategy that alleviates the risks inherent to alternative indices by projecting fundamental factors on risk factors to purge the influence… Read more
Archives
Surveys And Crossover – What Does the Bet Against Beta Strategy Mean in a Multi-Factor World?
Vol. 17, No. 4, 2019 Brian Ayash, Zeimowit Bednarek and Pratish Patel As of February 2019, an investor had a choice to invest in 1,043 smart beta Exchange-Traded Funds (ETFs). These ETFs depend on well-established asset-pricing anomalies. This paper provides a theoretical foundation justifying their existence. Loosely speaking, the investment strategy from the anomalies is… Read more
Surveys and Crossovers – The F-Utility of Wealth: It’s All Relative
Vol. 17, No. 3, 2019 Arun Muralidhar Finance theory is based on a very simple, yet critical assumption that “individuals maximize the expected utility of wealth”. However, there are three crucial elements of this simple six-word phrase that does not really stand the test of what investors actually do and one could argue that the… Read more
Book Review – The Son also Rises: Surnames and the History of Social Mobility
Volume 17, No. 3, 2019 By Gregory Clark (Reviewed by Savannah Smith) View PDF… Read more
Case Study – Do You Know the Provenance of Your Alternative Data
Vol. 17, No. 3, 2019 Seoyoung Kim View PDF… Read more
Practitioner’s Digest
Vol. 17, No. 3, 2019 Practitioner’s Digest View PDF… Read more
Bill Gross’Alpha: The King Versus the Oracle
Vol. 17, No. 3, 2019 Aaron Brown and Richard Dewey We set out to investigate whether “Bond King” Bill Gross demonstrated alpha (excess average return after adjusting for market exposures) over his career, in the spirit of earlier papers asking the same question of “Oracle of Omaha,” Warren Buffett. The journey turned out to be… Read more
Return Predictability and Market-Timing: A One-Month Model
Vol. 17, No. 3, 2019 Blair Hull, Xiao Qiao and Petra Bakosova We use weighted least squares to combine 15 diverse variables to build a predictive model for the one- month-ahead market excess returns.We transform our forecasts into investable positions to form a market-timing strategy. From 2003 to 2017, our strategy had 16.6% annual returns… Read more
Embedded Betas and Better Bets: Factor Investing in Emerging Market Bonds
Vol. 17, No. 3, 2019 Johnny Kang, Kevin So and Thomas Tziortziotis We document novel empirical insights driving the prices of sovereign external emerging market bonds. In the time series, we examine the market portfolio’s time-varying exposures to a broad set of macro factors (rates, credit, currency, and equity) and identify these embedded betas as… Read more
How to Beat the Machines Before They Beat You
Vol.17, No.3, 2019 Vineer Bhansali The use of “big” data, algorithms and machine learning is disrupting investment management. By carefully selecting domains where data is sparse and there is possibility of regime changes, a human investor can not only survive, but also thrive in a world of investment machines… Read more
Does Trading by ETF and Mutual Fund Investors Hurt Performance? Evidence from Time- and Dollar-Weighted Returns
Vol.17, No. 3, 2019 Ananth Madhavan and Aleksander Sobczyk This paper analyzes the “return gap” between internal rate of returns that account for intermediate investor flows (“dollar-weighted returns”) and more familiar buy-and-hold returns that funds typically must report. Our sample constitutes all US-domiciled open- end mutual funds and exchange-traded funds (ETFs), and covers both fixed… Read more
Practitioner’s Digest
Volume 17, No. 2, 2019 Practitioner’s Digest View PDF… Read more
Book Review – The Fifth Risk
Volume 17, No. 2, 2019 By Michael Lewis (Reviewed by Javier Estrada) View PDF… Read more
Case Study – Using Social Media Analytics in the Management of Investment Management
Volume 17, No. 2, 2019 Seoyoung Kim View PDF… Read more
Optimal Holdings of Active, Passive and Smart Beta Strategies
Volume 17, No. 2, 2019 Edmund Bellord, Joshua Livnat, Dan Porter and Martin B. Tarlie The growing dominance of the core and explore model — a large passive index combined with a collection of high tracking error satellite portfolios — in conjunction with the growth of factor investing has renewed interest in how to allocate… Read more
Automated Financial Management: Diversification and Account Size Flexibility
Volume 17, No. 2, 2019 Michael Reher and Celine Sun We study the value added of automated financial management (AFM) services along two dimensions: diversification and account size exibility. First, using a company-specific experiment with matched AFM and traditional portfolios, we find that AFM portfolios are significantly better diversified. Underdiversified investors are more likely to… Read more
A Model of Bond Value: Explaining Yields with Growth and Inflation
Volume 17, No. 2, 2019 Thomas Shevlin This paper looks to establish a new heuristic for investors, giving them a simple, intuitive way to relate bond yields to prevailing trends in growth and inflation. The model offers an alternative to forecasting surveys, which have been over-estimating 10-year Treasury yields for decades and continue to project… Read more
Quantifying the Skewness Loss of Diversification
Volume 17, No. 2, 2019 James X. Xiong and Thomas M. Idzorek Diversification is widely viewed as the “only free lunch” of finance. Unbeknownst to the free lunch crowd, skewness is typically positive for individual stocks and negative for diversified portfolios and thus diversification is not free. This undesirable move from positive to negative skewness… Read more
A Portfolio Approach to Accelerate Therapeutic Innovation in Ovarian Cancer
Volume 17, No. 2, 2019 Shomesh Chaudhuri, Katherine Cheng, Andrew W. Lo, Shirley Pepke, Sergio Rinaudo, Lynda Roman and Ryan Spencer We consider a portfolio-based approach to financing ovarian cancer therapeutics in which multiple candidates are funded within a single structure. Twenty-five potential early-stage drug development projects were identified for inclusion in a hypothetical portfolio… Read more
Portfolio Optimization with Noisy Covariance Matrices
Vol 17, No. 1, 2019 Jose Menchero and Lei Ji Mean-variance optimization provides a framework for constructing portfolios that have minimum risk for a given level of expected return. The required inputs are the expected asset returns, the asset covariance matrix, and a set of investment constraints. While portfolio optimization always leads to an increase… Read more
Predicting Investor Success Using Graph Theory and Machine Learning
Vol 17, No. 1, 2019 Jeffrey Glupker, Vinit Nair, Benjamin Richman, Kyle Riener, and Amrita Sharma We extract a large dataset of venture capital financing and related startup firms from Crunchbase. This paper examines how network position determines the success rate of investors. Precision in determining which investors will be successful is relatively high, but it… Read more
Letter from the Editor
Letter from the Editor John (Jack) Bogle, Sr passed away on January 16, 2018. View PDF… Read more
Practitioner’s Digest
Vol.17 No.1, 2019 Practitioner’s Digest View PDF… Read more
Lessons Learned From Student Managed Portfolios
Vol. 17 No.1, 2019 Stephan Kranner , Neal Stoughton, and Josef Zechner We study asset management decisions of three competing student managed funds in Vienna, Austria for a ten-year period. This real-world experience allows us to precisely test the tournament effect of fund management, the disposition effect, and managerial team size. We find support for… Read more
Book Review – Rational Investing: The Subtleties of Asset Management by Hugues Langlois and Jacques Lussier
Vol. 17. No.1, 2019 Rational Investing: The Subtleties of Asset Management by Hugues Langlois and Jacques Lussier reviewed by Savannah Smith View PDF… Read more