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Vol. 22, No. 2, 2024 by Ted Daverman, Joshua Kazdin, Michael Pensky and Fiona Sloof In this paper, we discuss the impact of extreme weather on US families with a specific focus on household finances. We first derive a life-cycle model of consumption, then introduce climate change-oriented consumption shocks as an additional expense which is… Read more

Vol. 22, No. 2, 2024 by Andrew Ang, Henry Shen, Jeff Shen and Rui Zhao We develop a model of optimal asset allocation with a market that has the potential to decouple. There are three Markov regimes: a regime where the market remains fully investable, a second regime where the market may become potentially decouple… Read more

Vol. 22, No. 1, 2024 Amitabh Chandra and Sumon Mazumdar Biotech innovations lead to the development of life-saving drugs and vaccines. However, bringing a new drug to market is an expensive,risky, and time-consuming process. According to one survey, the probability that a drug that has completed pre-clinical trials, would successfully pass all three stages of… Read more

Vol. 22, No. 1, 2024 Yu (Ben) Meng, Anne Simpson, Anna Snider and Christina Yi The missing “I’s” of information and incentives have restrained the potential of the capital markets in previous decades to respond to the growing demand for climate solutions. Progress on both fronts in recent years, however, is moving us rapidly beyond… Read more

Vol. 22, No. 1, 2024 Bob Korkie and H. J. Turtle We consider the impact of low volatility assets on the investment opportunity set (IOS) and resultant asset pricing. The limiting IOS and its finite investable proxy imply an asset pricing model that differs from standard asset pricing models. The Sharpe (1964)–Lintner (1965) CAPM with… Read more

Vol. 21, No. 4, 2023 Arun Muralidhar This asset pricing model incorporates four positive realities of investing; that investors have many stochastic goals, seek to delegate to skillful agents, explicitly specify risk budgets, and maximize risk-adjusted relative returns. As a result, it also incorporates the relative nature of investing—“Realativity”. Critical to investment practice, it provides… Read more

Vol. 21, No. 4, 2023 James X. Xiong, Thomas M. Idzorek and Roger G. Ibbotson U.S. active equity mutual funds have experienced net outflows since around 2006. The AUM-weighted performance remains similar over time, but equal-weighted performance (which emphasizes small AUM active funds) has deteriorated. Inflows/outflows contribute to the over/underperformance of individual active funds. We… Read more

Vol. 21, No. 4, 2023 Rob Arnott, Chris Brightman, Xi Liu and Que Nguyen “Gold-standard” cap-weighted indices have a buy-high and sell-lowdynamic that causes a structural long-term performance drag. Of course,relative to itself, no index can underperform, which is the reason it goes unnoticed. If we use a company’s fundamentals to choose stocks—and then cap-weights… Read more