Vol. 19, No. 2, 2021 Ananth Madhavan, Aleksander Sobczyk and Andrew Ang The proliferation of funds juxtaposed against the decline in individual stock listing since the mid-1990s raises questions about crowding in individual stocks or style factors. We examine these issues by characterizing the common components of funds from 2007 through 2018. A key difference… Read more
Articles
Active Investing as a Negative Sum Game: A Critical Review
Vol. 19, No. 2, 2021 Geoffrey J. Warren The literature on whether active management adds value is examined through the prism of the proposition by Sharpe (1991) that active investing is a negative sum game after costs. Focal points include how active fund research does not directly test Sharpe’s proposition and seems inconsistent with it… Read more
Asset Pricing, Asset Allocation and Risk-Adjusted Performance with Multiple Goals and Agency: The Goals and Risk-Based Asset Pricing Model
Vol. 19, No. 2, 2021 Arun Muralidhar Investment managers require a consistent asset pricing model, asset allocation recommendations, and risk-adjusted performance measures (or the “three facets of investing”) to be effective in managing portfolios. Incorporating three critical realities of investing into these models (i.e., that investors have many stochastic goals, seek to delegate to skillful… Read more
Idiosyncratic Risk and When to Tilt Toward Value
Vol. 19, No. 1, 2021 Jason D. Fink and Kristin E. Fink While the outperformance of value relative to growth portfolios has been well established, there is still debate over whether this outperformance is the result of a systematic risk factor or a behavioral tendency. The distinction is crucial to determining the expected returns of value-… Read more
Lending to Lose: Who Buys Negatively Yielding Bonds and What it Means for Investors
Vol. 19, No. 1, 2021 Vineer Bhansali I discuss the demand and supply of negatively yielding bonds, which is a recent and relatively unprecedented phenomenon in financial markets. To understand why one would lend to lose, I classify buyers into three categories, i.e. “forced buyers”, “speculators” and “non-financial government entities”. I conclude that the demand for… Read more
Investment Style Volatility and Mutual Fund Performance
Vol. 19, No. 1, 2021 Keith C. Brown, W. V. Harlow and Hanjiang Zhang We develop a holdings-based statistic to measure the volatility of a fund’s investment style characteristic profile over time. On average, funds with lower levels of style volatility significantly outperform more style-volatile funds on a risk-adjusted basis. We show that style volatility has… Read more
Multi-Period Portfolio Selection: A Practical Simulation-Based Framework
Vol. 18, No. 4, 2020 Kenneth Blay, Anish Ghosh, Steven Kusiak, Harry Markowitz, Nicholas Savoulides and Qi Zheng The topic of optimal portfolio selection over time has garnered significant attention from investment researchers since the introduction of portfolio theory in 1952. While computational, theoretical, and numerical methods have advanced, solutions introduced to date have yet… Read more
What Drives Active Share? Active Stock Selection or Active Stock Weights
Vol. 18, No. 4, 2020 Aymen Karoui and Saurin Patel Active Share is a popular measure of active management. However, it is not clear what drives Active Share. To improve our understanding, we decompose Active Share into Active Stock Selection (ASE) and Active Stock Weights (ASW). ASE captures portfolio weights in stocks outside the portfolio… Read more
A Personal Tribute to Professor Harry Markowitz on the Occasion of the JOIM Special Achievement Award
Vol. 18, No. 4, 2020 A Personal Tribute to Professor Harry Markowitz on the Occasion of the JOIM Special Achievement Award View PDF… Read more
How Much Can Collective Defined Contribution Plans Improve Risk-Sharing?
Vol. 18, No. 4, 2020 Deborah Lucas and Daniel Smith Collective Defined Contribution (CDC) plans have been suggested as an attractive and sustainable alternative to public sector DB plans. A CDC plan is a hybrid structure, designed to provide more predictable retirement benefits than a traditional DC plan while operating at the lower cost of… Read more