Sandra M. Forman, Andrew W. Lo, Monica Shilling and Grace K. Sweeney Volume 13, Number 4, Fourth Quarter 2015 A business development company (BDC) is a type of closed-end investment fund with certain relaxed requirements that allow it to raise money in the public equity and debt markets, and can be used to fund multiple… Read more
Articles
Retirement Readiness and Behavioral Finance
Volume 13, Number 3,(2015 Burton G. Malkiel More than 10,000 Baby Boomers will be reaching retirement age every year from now through 2030. Inadequate savings, high cost and poorly designed retirement plans as well as investor behavioral mistakes combine to level most of them woefully unprepared for retirement. The paper suggests a number of possible… Read more
Decentralization in Pension Fund Management
Volume 13, Number 3, (2015) David Blake, Alberto Rossi, Allan Timmermann, Ian Tonks and Russ Wermers The past few decades have seen a major shift from centralized to decentralized investment management by pension fund sponsors, despite the increased coordination problems that this brings. Using a unique, proprietary dataset of pension sponsors and managers, we identify… Read more
Augmented Risk Models to Mitigate Factor Alignment Problems
Volume 13, Number 3, (2015) Anureet Saxena and Robert A. Stubbs Construction of optimized portfolios entails a complex interaction between three key entities, namely, the risk factors, the alpha factors and the constraints. The problems that arise due to mutual misalignment between these three entities are collectively referred to as Factor Alignment Problems (FAP). Examples… Read more
Beware of Children Trading
Volume 13, Number 3, 2015 Henk Berkman, Paul D. Koch and P. Joakim Westerholm Guardians behind underaged accounts are successful at picking stocks. These informed traders tend to channel their best trades through the accounts of children, especially when they trade just before major earnings announcements, large price changes, and takeover announcements. Building on these… Read more
The Value of Active Investing
Craig William French Volume 13, Number 3, Third Quarter 2015 We examine whether the value of active investment management can exceed its cost, and find that it can, by a substantial margin. We consider the 0.67% average cost estimate in French (2008), comparing it with the expected value of a known active investment strategy. For… Read more
Valuing High Yield Bonds: A Business Modeling Approach
Thomas S. Y. Ho and Sang Bin Lee Volume 2, Number 2, Second Quarter 2004 This paper proposes a valuation model of a bond with default risk. Extending from the Brennan and Schwartz real option model of a firm, the paper treats the firm as a contingent claim on the business risk. This paper introduces… Read more
Strategic Asset Allocation with Low-Risk Stocks: A Bootstrap Analysis
Volume 13, Number 2, Second Quarter 2015 Wai Mun Fong and Timothy Koh Traditional asset allocations such as the 60/40 portfolio of stocks/bonds are not as well diversified as many investors believe since almost all the portfolio’s returns are driven by the stock component. This paper examines a novel approach to strategic allocation by combining… Read more
INSIGHTS: What Piketty Doesn’t Understand
Volume 13, Number 2, Second Quarter 2015… Read more
Alternative Currency Hedging Strategies With Known Covariances
Volume 13, Number 2, Second Quarter 2015 Wei Chen, Mark Kritzman and David Turkington Informed investors understand that they should hedge at least some of their portfolios’currency exposure, but the best strategy for doing so remains an open question. We investigate a variety of currency hedging strategies, including linear strategies, non-linear strategies, and combinations thereof… Read more