Free User Articles
How to Calibrate the Risk of Buyout Investments? Through Buyout-Backed Initial Public Offerings
Volume 15, Number 4, 2017 Jean-François L’Her, Ram Karthik and Stéphanie Desrosiers This paper proposes to use the public market returns of buyout-backed initial public offerings (BO-backed IPOs) as a proxy for buyout funds’ appraisal-based returns. Because they provide an economically significant route to exit, and their leverage and fund ownership are still significant three… Read more
A Portfolio Strategy with Hedge Funds and Liquid Alternatives
Volume 15, Number 4, 2017 E. William Stone and Paul J. White The advent of liquid alternatives in mutual fund format in recent years has brought with it challenges and opportunities with regards to portfolio strategy. Interpretation of these vehicles as return enhancers or risk diversifiers can lead to very different approaches in portfolio construction… Read more
Investment Horizon Risk and Volatility Metrics
Volume 15, Number 4, 2017 Robert Korkie We re-examine the literatures’ disparate conclusions that stock returns are more (less) volatile over longer investment horizons. We claim that the commonly employed variance ratio is incapable of generally determining whether investment risk increases with investment horizon. We demonstrate that the use of effective returns and standard deviation… Read more
The Impact of Costs on Recent Target Date Fund Performance
Volume 15, Number 4, 2017 C. Edward Chang, Thomas M. Krueger and Mark A. Wrolstad Target date funds (TDFs) are rapidly becoming a common means to prepare for retirement. Given the swelling demand for these funds, this research is a timely look at TDFs’ most recent decade. As of March 2016, 518 TDFs have been… Read more
What is Value in an Equity Market?
Volume 15, Number 3, 2017 Michael Suen, Hany Guirguis, Stan Beckers and Ted Theodore What is value in an equity market? Among investors, there is no universally accepted definition. This paper constructs a value index for the US equity market using the Stock and Watson (1988, 1991) methodology. The new value index is derived from… Read more
Multi-Period Portfolio Rebalancing with Personal Tax
Volume 15, Number 3, 2017 Ganlin Xu This paper compares two heuristic rebalancing rules for taxable accounts. The first one is trading X percent annually. The second one is based on the result of recent research, which indicate there existence of no-trading zone. The no-trading zone is obtained by using a quadratic function to approximate… Read more
Market Timing: Sin a Little Resolving the Valuation Timing Puzzle
Volume 15, Number 3, 2017 Cliff Asness, Antti Ilmanen and Thomas Maloney Successful market timing is a tantalizing holy grail for investors, especially when there seems to be persuasive evidence that simple valuation measures can predict subsequent market performance. But, as both researchers and investors have discovered, outperforming a passive buy-and-hold approach is harder than… Read more
Measuring Portfolio Performance: Sharpe, Alpha, or the Geometric Mean?
Volume 15, Number 3, 2017 Moshe Levy The most popular portfolio performance measures are the Sharpe ratio and alpha. While the Sharpe ratio is optimal under the capital asset pricing model (CAPM) assumptions of normal return distributions and unlimited borrowing at the risk-free rate, we find that it is not well aligned with investors’ preferences… Read more
Rethinking the Fundamental Law of Active Management
Volume 15, Number 2, 2017 Jose Menchero The fundamental law of active management provides a powerful framework for analyzing portfolio diversification and risk-adjusted returns. It states that the information ratio of an unconstrained optimal portfolio is given by the product of the information coefficient (a measure of skill) and the square root of breadth, where… Read more