Volume 14, Number 2, 2016 Ananth Madhavan and Aleksander Sobczyk Exchange-traded funds (ETFs) have grown substantially in diversity, market significance, and size in recent years. As a consequence, there is increased interest by practitioners in the pricing and trading of these investment vehicles. This paper develops a model to examine ETF price discovery and premium… Read more
Articles
Portfolio Diversification In Concentrated Bond And Loan Portfolios
Volume 14, Number 2, 2016 Paul Kupiec I develop an algorithm to approximate the loss rate distribution for fixed income portfolios with obligor concentrations. The approximation requires no advanced mathematics or statistics, only the summation of large exposures and the evaluation of binomial probabilities. The approximation is model-independent and can be used after removing default… Read more
Optimal Municipal Bond Portfolios for Dynamic Tax Management
Volume 14, Number 1, 2016 Andrew Kalotay As currently practiced, tax-loss selling of municipal bonds is typically an ad hoc year-end exercise. Under dynamic tax management the right to execute a tax-beneficial trade is considered to be a valuable option. Selling a bond and reinvesting in another entails swapping the associated tax options. The generalized… Read more
The Information Content of Analysts’ Recommendations Revisited
Volume 14, Number 1, 2016 Daniel Bradley, Jonathan Clarke, Suzanne Lee and Chayawat Ornthanalai Bradley et al. (BCLO, 2014) find evidence that the time stamps reported in I/B/E/S for analysts’ recommendations are systematically delayed giving the appearance that recommendations are uninformative.We review the findings of BCLO and extend their analyses along three dimensions. First, we… Read more
The Self-Fulfilling Prophecy of Popular Asset Pricing Models
Volume 14, Number 1, 2016 Bradford Cornell and Jason Hsu The assumption that asset prices are determined by the efforts of end investors to maximize intertemporal utility supports a pricing theory that is both elegant and intuitive. Unfortunately, the assumption is counterfactual. End investors, with few exceptions, lack the capacity to behave in a fashion… Read more
Tax-Cognizant Portfolio Analysis: A Methodology for Maximizing After-Tax Wealth
Kenneth A. Blay and Harry M. Markowitz Volume 14, Number 1, 2016 The most prevalent methods of incorporating taxes into the portfolio construction process are the preliminary adjustment of asset allocation inputs for taxes and the post-optimization application of asset location heuristics. We argue that these methods are unsatisfactory in that they fail to address… Read more
Fundamental Indexation and the Fama-French Three Factor Model: Risk Assimilation or Stock Mispricing?
Volume 13, Number 4, Fourth Quarter 2015 Xiaofeng Shi, Mike Dempsey and Laurence Irlicht We confirm the outperformance of fundamental indexation (FI) portfolio returns as due to an exploitation of stock mispricing, while, simultaneously, largely explained in terms of the Fama–French three-factor (FF-3F) model. This leads us to conclude that rather than FI representing a… Read more
Efficiently Combining Multiple Sources of Alpha
Jose Menchero and Jyh-Huei Lee Volume 13, Number 4, 2015 In this article, we examine the question of efficiently combining multiple sources of alpha. We begin with a comparison of the various methods used by practitioners for constructing portfolios that capture a single alpha signal. These methods are broadly categorized as either: (a) simple factor… Read more
Investing in the Asset Growth Anomaly Across the Globe
Xi Li and Rodney N. Sullivan Volume 13, Number 4, 2015 We document the existence of an anomalous asset growth effect globally and find that it comprises some combination of a market mispricing and some pervasive global systematic risk. To support our findings, we explore a battery of tests to include how country-level governance and… Read more
Is U.S. Insider Trading Still Relevant? A Quantitative Portfolio Approach
Carr Bettis, John B. Guerard and Daniel McAuley Volume 13, Number 4, 2015 For 40 years academic literature has reported statistically significant excess returns to selected insiders trading in their firms’ shares, and similar evidence for outsiders who selectively mimic insider trading decisions spans three decades. However, constructing tradable signals leveraging insider trading data is… Read more