Vol. 20, No. 4, 2022 by Janina Kolle, Harald Lohre, Erhard Radatz and Carsten Rother The 2015 Paris Agreement is a landmark in limiting emissions and targeting global warming well below 2◦C, preferably 1.5◦C compared to pre-industrial levels. In this light, we investigate how to efficiently construct equity portfolios that help mitigating climate change risk… Read more
Articles
ESG Investment Performance Evaluation: An Integrated Approach
Vol. 20, No. 4, 2022 by Stephen Horan, Elroy Dimson, Clive Emery and Kenneth Blay ESG investment strategies have experienced a massive inflow of capital over the past decade despite investors having few methods to evaluate their performance and communicate their ESG values, objectives, and preferences to investment managers. This paper develops a three-dimensional performance… Read more
Carbon Emissions and Asset Management
Vol. 20, No. 4, 2022 by Ashwin Alankar and Myron Scholes Two common methods that portfolio managers use to reduce the carbon footprint of their portfolios are either to exclude carbon emitters from their portfolios or to engage/cajole underlying companies to reduce their carbon footprint by taking actions to reduce emissions. We estimate the costs… Read more
What’s in the Moneyness? Moneyness Spread and Future Stock Returns
Vol. 20, No. 3, 2022 by Zhan Li There exists a significant and positive cross-sectional relation between moneyness spread and future stock returns. Stocks with high moneyness spread outperform stocks with low moneyness spread, measured by raw and risk-adjusted returns. This predictability can last for at least 15 days, and the predictability of open interest-weighted… Read more
Just Say No to Leveraged ETFs
Vol. 20, No. 3, 2022 by Ziemowit Bednarek and Pratish Patel The daily return on a positive Leveraged Exchange-Traded Fund (LETF) is a multiple of its benchmark. We compare the risk–reward trade-off of investing in an LETF relative to the benchmark. The main contribution is straightforward: Sharpe Ratio (SR) adequately and sufficiently captures the trade-off… Read more
Portfolio Performance Attribution via Shapley Value
Vol. 20, No. 3, 2022 by Nicholas Moehle, Stephen Boyd and Andrew Ang We consider an investment process that includes a number of features, each of which can be active or inactive. Our goal is to attribute or decompose an achieved performance to each of these features, plus a baseline value. There are many waysto… Read more
Tax-Rate Arbitrage: Realization of Long-Term Gains to Enable Short-Term Loss Harvesting
Vol. 20, No. 3, 2022 by Lisa Goldberg, Taotao Cai and Pete Hand We look at an enhanced loss-harvesting strategy, tax-rate arbitrage, which exploits the differential between short- and long-term tax rates. In ourstudy, we examine tax-managed strategies over numerous historical periods. For the ideal tax-rate arbitrage investor, one who is subject to the highest… Read more
Toil and Trouble, Don’t Get Burned Shorting Bubbles
Vol. 20, No. 2, 2022 by Aaron Brown and Richard Dewey Bubbles are among the most puzzling and controversial phenomena of financial markets. Although rare, their cumulative impact on both investor returns and the broader economy can be great. One particular question that has motivated research is why shrewd short sellers don’t prevent excessive price… Read more
Financing Vaccines for Global Health Security
Vol. 20, No. 2, 2022 by Jonathan T. Vu, Benjamin K. Kaplan, Shomesh Chaudhuri, Monique K. Mansoura and Andrew W. Lo Recent outbreaks of infectious pathogens such as Zika, Ebola, and COVID-19 have underscored the need for the dependable availability of vaccines against emerging infectious diseases (EIDs). Prior to the COVID-19 pandemic, the cost and… Read more
Sustainable Investing From a Practitioner’s Viewpoint: What’s in Your ESG Portfolio?
Vol. 20, No. 2, 2022 by Jeffrey R. Bohn, Lisa R. Goldberg and Simge Ulucam Many investors have shifted their asset allocations to account for Environmental, Social, and Governance (ESG) issues. While we welcome this shift from an ethical perspective, the financial and non-financial benefits of ESG investing as well as best practices for portfolio… Read more