Andrew Kalotay Volume 12, Number 1, First Quarter 2014 We explore the effect of taxes on the prices of municipal bonds. Although interest is tax-exempt, the gain resulting from purchasing a muni at a deep discount below the so-called de minimis threshold is subject to severe tax treatment. The gain is taxed as ordinary income… Read more
Articles
Sovereign Wealth and Risk Management: A Framework for Optimal Asset Allocation of Sovereign Wealth
Zvi Bodie and Marie Briere Volume 12, Number 1, First Quarter 2014 This paper sets out an analytical framework for optimal asset allocation of sovereign wealth, based on the theory of contingent claims analysis applied to the sovereigns economic balance sheet. A country solves an asset-liability management problem involving its sources of income and its… Read more
The Performance of Leveraged and Inverse Leveraged Exchange Traded Funds
Brian J. Henderson and Gerald W. Buetow Volume 12, Number 1, First Quarter 2014 We document significant abnormal daily returns to leveraged and inverse leveraged exchange-traded funds (ETFs). Abnormal returns are positive for leveraged funds and negative to inverse leveraged funds, and the magnitude increases in the absolute value of the leverage multiple. We propose… Read more
Analyst Forecasts: It Pays to Be Off!
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
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