Volume 21, No. 2, Second Quarter 2023

The Math Gender Gap and Women’s Career Outcome

by: Renée B. Adams, Brad M. Barber and Terrance Odean

We show that the gender gap in mathematics is related to women’s career outcomes. The math gender gap predicts the proportion of women in the investment profession across countries and across states in the US. Our results suggest that societal factors jointly affect the math gender gap and women’s career outcomes. Identifying and addressing these barriers could decrease the math gender gap and increase the representation of women in highly quantitative fields such as finance, which might help to reduce the gender pay gap since these fields tend to pay well.

Practitioner’s Digest • Vol. 21, No. 2

The “Practitioners Digest” emphasizes the practical significance of manuscripts featured in the “Insights” and “Articles” sections of the journal. Readers who are interested in extracting the practical value of an article, or who are simply looking for a summary, may look to this section.

A Practitioner’s Guide to Address Fat Tails and Downside Risk in Portfolio Construction

by: Eva A. Xu and Eric L. Tarkin

Standard models of risk and return are known to underestimate the frequency of extreme events and cannot account for the observed phenomena of increasing correlations in times of stress. This was most salient during the global financial crisis. Despite all of this, practitioners still rely heavily on the ubiquitous mean–variance optimization (MVO) for portfolio construction. This paper proposes a flexible framework, based on an explicit parametric model, that can address many of the shortcomings of MVO. We demonstrate that the proposed CVaR optimization is a superior descriptor of multi-asset returns and downside risk, and can lead to improvements in investment performance.

Is Index Concentration an Inevitable Consequence of Market-Capitalization Weighting?

by: Lisa R. Goldberg, Ananth Madhavan, Harrison Selwitz and Alexander Shkolnik

Market-cap-weighted equity indexes are ubiquitous. However, there are growing concerns that such indexes are increasingly concentrated in a few stocks. We ask: Does market-cap weighting inevitably lead to increased concentration overtime? The question of inevitability arises from research that develops probabilistic causal mechanisms for the dominance by a few firms over time. We show that while the concentration currently observed in major equity market indexes is substantial, it is not at an all-time high. Monte Carlo simulations calibrated to market data provide insight into various approaches to mitigate concentration, albeit at the expense of higher turnover.

Trading with the Informed and Against the Uninformed: Flows and Positioning in the Global Currency Market

by: Aldo Barrios, Rob Franolic, Davide Giovanardi and Michael Melvin

FX trade settlement data from CLS provides the most comprehensive view of the opaque market of OTC currency trades. We use the flows of investment funds and non-financial corporates and develop trading signals where the former reflects speculative strategies, while the latter trade for liquidity needs. The implication is we trade in the direction of the funds flows and trade against large corporate flows, which should be followed by price reversals. Trading with informed flows yields positive risk-adjusted performance. Incorporating the liquidity trades signal improves risk-adjusted performance and greatly lowers the tail risk of the model.

Bitcoin ETFS: The Pros and Cons of a Spot ETF Versus a Futures ETF

by: Seoyoung Kim

“Case Studies” presents a case pertinent to contemporary issues and events in investment management. Insightful and provocative questions are posed at the end of each case to challenge the reader. Each case is an invitation to the critical thinking and pragmatic problem solving that are so fundamental to the practice of investment management.

Healthcare Finance: Modern Financial Analysis for Accelerating Biomedical Innovation

by: Andrew W. Lo and Shomesh E. Chaudhuri • reviewed by: Piyush Kontu

“Book Reviews” identifies important, and often popular, new books from a wide range of investment topics. Beyond providing a summary and review of the content and style of the books, “Book Reviews” seeks to contribute to a conscious, critical, and informed approach to investment literature.