Vol. 16, No.3, 2018 Richard Franz Without doubt the financial returns of asset classes are interlinked with the economy. However, a direct link between financial returns and return-driving forces has not been discovered yet. Moreover, there exist many robust approaches for within-asset-class allocation but few advances have been made for between-asset-class allocation. To address these… Read more
Articles
Picking Through the Alpha Graveyard Correcting for Survivorship Bias in Investment Product Universes
Vol. 16, No.3, 2018 Gregory C. Allen, Ivan S. Cliff and Walter J. Meerschaert The authors propose a practical technique to correct for survivorship bias across return distributions for investment product universes. The technique is designed to work efficiently in a large-scale performance measurement environment. It uses all available data for survivors and non-survivors, corrects for bias across… Read more
Defined Contribution Pension Plans and Mutual Fund Flows
Vol. 16, No.3, 2018 Clemens Sialm, Laura Starks and Hanjiang Zhang Defined contribution (DC) pension plans constitute an important component of mutual fund assets. Flows into DC plans depend on the decisions of plan sponsors and plan participants: The sponsors select the investment menus made available to employees and the participants decide how to allocate… Read more
A New Approach to Goals-Based Wealth Management
Vol. 16, No.3, 2018 Sanjiv R. Das, Daniel Ostrov, Anand Radhakrishnan and Deep Srivastav We introduce a novel framework for goals-based wealth management (GBWM), where risk is understood as the probability of investors not attaining their goals, not just the standard deviation of investor’s portfolios. Our framework is based on a foundation of developments in… Read more
The Dirty Dozen of Valuation Ratios: Is One Better Than Another?
Vol. 16, No. 2, 2018 Eero Pätäri, Ville Karell, Pasi Luukka and Julian Scott Yeomans This paper compares the efficacy of both traditional valuation ratios and an extensive set of related combination criteria in identifying the future best-performing stocks for a comprehensive U.S. sample over the period 1971–2013. Value portfolios formed on different criteria have… Read more
Evaluation and Ranking of Market Forecasters
Vol. 16, No. 2, 2018 David H. Bailey, Jonathan M. Borwein, Amir Salehipour and Marcos López de Prado Many investors rely on market experts and forecasters when making investment decisions, such as when to buy or sell securities. Ranking and grading market forecasters provides investors with metrics on which they may choose forecasters with the… Read more
Common Factors in Corporate Bond Returns
Vol. 16, No. 2, 2018 Ronen Israel, Diogo Palhares and Scott Richardson We find that four well-known characteristics (carry, defensive, momentum, and value) explain a significant portion of the cross-sectional variation in corporate bond excess returns. These characteristics have positive risk-adjusted expected returns and are not subsumed by traditional market premia or respective equity anomalies… Read more
Carbon Footprint and Productivity: Does the “E” in ESG Capture Efficiency
Volume 16, No. 1, 2018 Gerald T. Garvey, Mohanaraman Iyer and Joanna Nash This paper analyses the now-popular carbon ratio (emissions relative to sales) as a way to select stocks. We document that reduced carbon ratios are associated with stronger future profitability and positive stock returns in a global universe of stocks. But why? The… Read more
A Blueprint for Integrating ESG into Equity Portfolios
Volume 16, No. 1, 2018 Jennifer Bender, Todd Bridges, Chen He, Anna Lester and Xiaole Sun Environmental, social and governance (ESG) offers a source of new and potentially valuable information for investors, impacting both potential returns and risk. Growing data availability has created the opportunity to integrate ESG into equity portfolios for a variety of… Read more
Establishing ESG as Risk Premia
Volume 16, No. 1, 2018 Julia L. Pollard, Matthew W. Sherwood and Ryan Grad Klobus This seminal research provides statistically significant evidence for the empirical identification of Environmental, Social and Governance (ESG) as a factor of risk premium when integrated within an equity portfolio. This study purposes to establish that the conceptual development, adoption and… Read more