James Scott and Margaret Stumpp This paper investigates the type of returns-based data a consultant or institutional investor would confront when analyzing an existing enhanced index manager or searching for a new one. The paper presents findings about different types of enhanced managers. Among them, and not surprisingly, the data suggests that all enhanced managers… Read more
Articles
DO SHORT SELLERS CAUSE THE WEEKEND EFFECT?
Honghui Chen and Vijay Singal We provide a new explanation for the weekend effect. Our hypothesis is based on the contention that speculative short sellers are unwilling or less likely to hold their positions over long non-trading periods, typically the weekend. Therefore, they buy to cover on Fridays and reopen their positions on Mondays causing… Read more
FISCAL POLICY AND INFLATION: PONDERING THE IMPONDERABLES
Eric M. Leeper An asset-pricing perspective reveals that inflation depends on current and expected monetary and fiscal policies. There are three ways to carry $1 today into the future: money, bonds, and real assets. That dollar’s purchasing power varies inversely with the price level. Expected money growth, tax rates, and government spending directly impinge on… Read more
SHORT VOLATILITY STRATEGIES: IDENTIFICATION, MEASUREMENT, AND RISK MANAGEMENT
Mark Anson and Ho Ho Many investors demand position transparency from hedge fund managers in the belief that more information is better than less. However, certain hedge fund strategies create synthetic investment positions that resemble a short put option, and these positions are not revealed by position transparency. Specifically, event-driven hedge funds and merger arbitrage… Read more
A PRACTICAL FRAMEWORK FOR PORTFOLIO CHOICE
Richard O. Michaud Traditional portfolio optimality criteria often have serious theoretical or practical limitations. A financial planning portfolio choice framework consisting of a resampled efficient portfolio set and multiperiod geometric mean analysis is a practical alternative for many situations of investment interest. While Monte Carlo financial planning is a more flexible framework, geometric mean analysis… Read more
THE TREYNOR CAPITAL ASSET PRICING MODEL
Craig W. French History generally accords the development of the single-period, discrete-time Capital Asset Pricing Model (CAPM) to the works of Sharpe (1964), Lintner (1965a,b) and Mossin (1966).We explore the early work of another notable financial economist, Jack L. Treynor, who also deserves credit for the original Capital Asset Pricing Model because of his revolutionary… Read more
GREAT MOMENTS IN FINANCIAL ECONOMICS: II. MODIGLIANI–MILLER THEOREM
Mark Rubinstein Franco Modigliani and Merton Miller are almost universally credited with the theorem that bears their name. In fact, the theorem was stated and proven 20 years earlier by John Burr Williams, to which he gave the name: “the Law of the Conservation of Investment Value.” However, Modigliani–Miller deserve credit for clearly laying out… Read more
PRIVATE EQUITY RETURNS: AN EMPIRICAL EXAMINATION OF THE EXIT OF VENTURE-BACKED COMPANIES
Sanjiv R. Das, Murali Jagannathan, and Atulya Sarin In this paper, we examine 52 322 financing rounds in 23 208 unique firms, over the period 1980 through 2000 by venture and buyout funds and estimate the probability of exit, time to exit, exit multiples, and the expected gains from private equity investments. The expected multiple… Read more
GREAT MOMENTS IN FINANCIAL ECONOMICS: I. PRESENT VALUE
Mark Rubinstein This is the first in a series of articles to appear in this journal on the history of significant ideas in financial economics. Perhaps the most basic of these is the idea of present value. Early contributors include Johan de Witt (1671), the famous mathematician Abraham de Moivre (1725), and the famous scientist… Read more
A THEORY OF INFLATION
Jack L. Treynor Inflation entails a loop running from prices to wages and back again from wages to prices. Change in inflation rates result from two types of intervention in that otherwise closed loop. Inflation surprise intervenes when the labor productivity of the marginal plant, hence the real wage, turns out different from what negotiators… Read more