Practitioner’s Digest • Vol. 24, 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.

Adapting to AI: Rethinking Labor Income and Retirement Design in a Changing Economy

by: Michael Pensky, Partha Mamidipudi, Fiona Sloof, Joshua Kazdin, Kartikey Garg

In this paper, we discuss how artificial intelligence (AI) could impact lifetime income through the channel of occupational tasks and wages. We first derive a life-cycle model of consumption, then incorporate AI as a shock to income and longevity. We find that AI-derived impacts on labor income and longevity can influence wealth accumulation and consumption over an individual’s lifetime. We test a key input to this model in which occupations that experienced a net drop in tasks demanded of workers suffer declines in total wages. We then use a large language model (LLM) to estimate how susceptible occupations can be to task reduction from automation. Our results suggest that most occupations will be affected by AI-driven automation but with a wide dispersion across jobs and industries. We conclude with a discussion on why AI-driven changes in the labor market should prompt new approaches to retirement and explore how financial planning can help workers adjust to an AI-enhanced economy.

A Tail of Five Skews

by: Colin Suvak, Jim Masturzo

We show that a highly statistically significant total skewness risk premium is embedded in the cross-section of returns within a large universe of multi-asset futures and forwards, within a broad set of 215 long/short style factors formed on that universe, and within the cross-sectional equity factor zoo. The skewness risk premium is most robust when it is measured in a relatively new, intuitive way that minimizes the impact of outliers while still capturing information in the tails, which we demonstrate by evaluating five candidate methods across a battery of empirical tests. We show there is compensation for bearing skewness risk in both the long run and ex ante on a point-in-time basis available to investors.

Option Return Anomalies

by: Sanjay K. Nawalkha and Xiaoyang Zhuo

This paper surveys empirical option return anomalies in both unhedged and delta-hedged strategies. We document persistent deviations from classical models, including the sharply negative returns on out-of-the-money puts, the negative performance of zero-beta straddles, and the large losses of delta-hedged portfolios documented in many studies. These patterns remain difficult to reconcile because most option-pricing models provide valuation formulas but not the formulas for finite-horizon expected returns or higher-order return moments. Equivalent Expectation Measures (EEMs) and Multiverse EEMs (MEEMs) supply closed-form expressions of these moments, enabling cleaner comparisons between model-implied and realized returns. We outline how these tools can be used to address longstanding anomalies and highlight future research opportunities for explaining cross-sectional predictability, volatility risk premia, and finite-horizon option returns.

Fall 2025 JOIM Conference Summaries — McCombs School of Business, University of Texas at Austin

We showcased members of the McCombs School of Business faculty alongside outstanding presenters and discussants from other finance institutions, focusing on selected topics of timely interest. This provided a platform highlighting several areas of cutting-edge research. Our emphasis was on topics of strong practical significance addressed by leading researchers in finance.

Holistic Sustainability: Identifying “Clean” Investments in a Fragmented Disclosure Framework

by: Ye Cai, 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.

Skill Versus Luck: Taking the Guessing Out of Equity Fund Selection

by: Michael A. Ervolini • reviewed by: Alexander Swade

“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.