Articles
What Drives Active Share? Active Stock Selection or Active Stock Weights
Vol. 18, No. 3, 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 Six-Component Integrated Approach to Addressing the Retirement Funding Challenge
Vol. 18, No. 3, 2020 Robert C. Merton and Arun Muralidhar This paper offers an integrated approach to addressing the global retirement funding challenge, especially in light of the coronavirus shock that has created an unanticipated and unprecedented impact on lifetime income/consumption. It frames the problem in a six-component approach to the funding challenge with… Read more
How Much Can Collective Defined Contribution Plans Improve Risk-Sharing?
Vol. 18, No. 3, 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
Towards Replacing the Defined Benefit Plan: Assured Retirement Income Provided by a Liquid Investment Fund
Vol. 18, No. 3, 2020 Miguel Palacios, Hayne Leland and Sasha Karimi Traditional corporate defined benefit (DB) plans provided retirees with constant retirement income, but DB plans have now all but disappeared. While defined contribution (DC) plans now permit low-fee wealth accumulation, the conversion of wealth to predictable nominal or real income during retirement remains… Read more
Correlation Shrinkage: Implications For Risk Forecasting
Vol. 18, No. 3, 2020 Jose Menchero and Peng Li In this article, we study the impact of shrinking sample correlations toward zero. We find that while such shrinkage may be beneficial from a portfolio-construction perspective, there is virtually no benefit in terms of the accuracy of risk forecasts. In fact, we show that correlation… Read more
Is Sell-Side Research More Valuable in Bad Times?
Vol. 18, No. 3, 2020 Roger K. Loh and René M. Stulz Little is known about whether the value of sell-side research is different in bad times compared to good times. Because uncertainty is high in bad times, investors find it harder to assess firm prospects and hence should value analyst output more. However, higher… Read more
Attribution of Ex-Post Realized Sharpe Ratio to The Predictability Of The Ex-Ante Forecast Return and Risk.
Vol.18, No.3, 2020 Masahito Shimizu We propose to use an attribution formula that enables the ex-post realized Sharpe ratio to be decomposed into realized market conditions, ex-ante predictability of the returns, risk magnitude, and risk factors. We compare the predictability of the ex-ante return and exante risk directly, quantitatively identifying the main source of the… Read more
Comparing Anomalies Using Liquidity and Earnings
Vol. 18, No. 3, 2020 Robert Snigaroff, David Wroblewski, and Sean Sehyun Yoo We compare three factor models and their ability to explain a set of portfolio anomalies. Two of these models are based on market capitalization which most of the industry currently uses to characterize stocks. We replace this line of thinking by utilizing… Read more
Measuring Risk Preferences and Asset-Allocation Decisions: A Global Survey Analysis
Vol. 18, No. 3, 2020 Andrew W. Lo, Alexander Remorov, and Zied Ben Chaouch We use a global survey of over 22,400 individual investors, 4,892 financial advisors, and 2,060 institutional investors between 2015 and 2017 to elicit their asset allocation behavior and risk preferences. We find substantially different behaviors among these three groups of market… Read more