Harry M. Kat and Roel C. A. Oomen Volume 5, Number 3, Third Quarter 2007 In this paper, we study the multivariate return properties of a large variety of commodity futures. We find that between commodity groupings (such as metals, energy, etc.) correlations are very low and mostly insignificant whereas within groups they tend to… Read more
Articles
Proxy Voting Brand Competition
Mark Latham Volume 5, Number 1, First Quarter 2007 Institutional and individual investors can coordinate their proxy voting to improve corporate governance. A new funding design for professional proxy advisors can increase their quality and competition. These reforms would reduce the need for the public sector to police boards of directors by onerous regulation and… Read more
The Value of Transaction Cost Forecasts: Another Source of Alpha
Mark Coppejans and Ananth Madhavan Volume 5, Number 1, First Quarter 2007 This article examines the impact of transaction costs on portfolio performance. Previous research on this topic has focused largely on post-trade considerations, i.e., the impact of realized transaction costs on investment performance. By contrast, we focus on pre-trade considerations, namely the impact of… Read more
Industry Concentration and Mutual Fund Performance
Marcin Kacperczyk, Clemens Sialm and Lu Zheng Volume 5, Number 1, First Quarter 2007 We study the relation between the industry concentration and the performance of actively managed U.S. mutual funds from 1984 to 2003. Our results indicate that the most concentrated funds perform better after controlling for risk and style differences using factor-based performance… Read more
Measuring the True Cost of Active Management by Mutual Funds
Ross M. Miller Volume 5, Number 1, First Quarter 2007 This article derives a rigorous method for allocating fund expenses between active and passive management and that enable one to compute the implicit cost of active management. Computing this “active expense ratio” requires only a fund’s published expense ratio, its R-squared relative to a benchmark… Read more
What Every Investor Should Know About Commodities Part I: Univariate Return Analysis
Harry M. Kat and Roel C. A. Oomen Volume 5, Number 1, First Quarter 2007 In this paper we study the univariate return properties of a large variety of commodity futures. Our analysis shows that the volatility of commodity futures is comparable to that of US large cap stocks. Yet, with the exception of energy… Read more
Stock Return Momentum and Investor Fund Choices
Travis Sapp and Ashish Tiwari Volume 4, Number 3, Third Quarter 2006 Recent research by Gruber (1996) and Zheng (1999) has shown that investors are able to predict mutual fund performance and invest accordingly. This phenomenon has been dubbed the “smart money” effect. We show that the smart money effect is explained by stock return… Read more
The Fundamental Law of Active Portfolio Management
Roger Clarke, Harindra de Silva and Steven Thorley Volume 4, Number 3, Third Quarter 2006 The strategic perspectives and terminology of the fundamental law is a common framework in the practice of active portfolio management. For tractability, fundamental law theory depends on the simplifying assumption of a diagonal covariance matrix of security returns, though the… Read more
Cap Weighted Portfolios Are Sub-Optimal Portfolios
Jason Hsu Volume 4, Number 3, Third Quarter 2006 In this paper, we show that under a fairly innocuous assumption on price inefficiency, market capitalization weighted portfolios are sub-optimal. If market prices are more volatile than is warranted by changes in firm fundamentals, then cap-weighted portfolios do not capture the full premium commensurate their risk… Read more
Bruno de Finetti, The Problem of Full-Risk Insurances
Luca Barone Volume 4, Number 3, Third Quarter 2006 We examine-in its different aspects-the problem of the risk due to hedging a set of insurances and, consequently, the problem of the retention levels, i.e., of the most efficient method to reinsure a part of such insurances to reduce the risk within the desired limits, while… Read more