Gilles Hilary and Charles Hsu Volume 11, Number 4, Fourth Quarter 2013 We show that analysts who display more consistent forecast errors have a greater effect on stock prices than analysts who provide more accurate but less consistent forecasts. This result leads to three implications. First, consistent analysts are less likely to be demoted to… Read more
Articles
Stress-Testing Portfolio-Specific Risk
Jason D. Fink, Kristin E. Fink and Hui H. Sono Volume 11, Number 4, Fourth Quarter 2013 We establish a relationship between the idiosyncratic risk of portfolios and a parsimonious group of market variables. Because we are able to summarize idiosyncratic risk with this small group of variables, we are able to design stress-tests that… Read more
What Drives the Value Premium? Risk Versus Mispricing: Evidence From International Markets
Denis B. Chaves, Jason Hsu, Vitali Kalesnik and Yoseop Shim Volume 11, Number 4, Fourth Quarter 2013 Value stocks outperform growth stocks. The academic literature provides two competing interpretations on what drives the value premium: exposure to risk factors or mispricing of securities. Existing empirical studies, which are largely based on U.S. data, have not… Read more
Where the Boys Are Gender, Risk Taking and Authority in Institutional Equity Management
Margaret Stumpp Volume 11, Number 3, Third Quarter 2013 This paper examines the gender distribution of key investment professionals with decision making and oversight authority in institutional equity management. We find that women are heavily underrepresented among almost all key positions not just within portfolio management. We find no evidence that this is attributable to… Read more
Demystifying Managed Futures
Brian Hurst, Yao Hua Ooi and Lasse Heje Pedersen Volume 11, Number 3, Third Quarter 2013 We show that the returns of Managed Futures funds and CTAs can be explained by time series momentum strategies and we discuss the economic intuition behind these strategies. Time series momentum strategies produce large correlations and high R-squares with… Read more
Generating Superior Performance in Private Equity: A New Investment Methodology
S.P. Kothari, Gitanjali Swamy and Konstantin Danilov Volume 11, Number 3, Third Quarter 2013 This paper provides a new investment methodology for private equity portfolios that applies principles of investment management used in traditional asset classes. We apply Modern Portfolio Theory (MPT) with rational selection of portfolios that are on the efficient frontier of risk-reward… Read more
LIBOR Versus OIS: The Derivatives Discounting Dilemma
John Hull and Alan White Volume 11, Number 3, Third Quarter 2013 Traditionally practitioners have used LIBOR and LIBOR-swap rates as proxies for risk-free rates when valuing derivatives. This practice has been called into question by the credit crisis that started in 2007. Many banks now consider that overnight indexed swap (OIS) rates should be… Read more
VarGamma Stress Tests
Kent Osband Volume 11, Number 2, Second Quarter 2013 Standard financial stress tests are ad hoc. They offer no guidance on how to select the target stress levels, how to adjust for randomness within crisis, or how to integrate the results with other risk measures. The VarGamma metric introduced by Osband (2013) offers an appealing… Read more
Mutual Fund’s Net Economic Alpha: Definition and Evidence
Sharon Garyn-Tal and Beni Lauterbach Volume 11, Number 2, Second Quarter 2013 It is sometimes argued that existing methodologies for assessing mutual fund’s performance are unfair, as fund’s return is taken net of expenses and benchmark return is gross of expenses. Examining over 1000 U.S. non-specialized mutual funds in 2001-2009, we find that the abovementioned… Read more
Approaches to Improving Bank Share Value Using Credit Portfolio Management and Credit – Transfer Pricing
Jeffrey R. Bohn and Roger M. Stein Volume 11, Number 2, Second Quarter 2013 Prudent credit risk management within a bank requires that a number of agents within the firm communicate, agree and act in a concerted fashion to manage credit risk both at the individual exposure level and at the broader portfolio level. This… Read more