Jaime Lee, Terry Marsha, Robert Maxim and Paul Pfleiderer This paper provides an analysis of the relation between equity and fixed income returns over time. As measured by realized correlation, this relation has changed substantially over the last decade, from positive to negative through the market collapse and is currently around zero. We find “jumps”… Read more
4th Quarter (2006)
Aggregate Idiosyncratic Risk and Market Returns
Turan G. Bali and Nusret Cakici This paper tests the empirical performance of a model-independent measure of aggregate idiosyncratic risk introduced by Bali and Cakici (2004) in the intertemporal capital asset pricing framework. The results indicate a significantly positive relation between the equal-weighted average stock volatility and the value-weighted portfolio returns on the NYSE/AMEX/NASDAQ stocks… Read more
CASE STUDIES: The Worldwide Financier
Jack L. Treynor View PDF… Read more
The Stock Market’s Reaction to Unemployment News, Stock-Bond Return Correlations, and the State of the Economy
John H. Boyd, Ravi Jagannathan and Qianqiu Liu We confirm Boyd et al.’s (2005) finding that on average a surprise increase in unemployment is “good news” for stocks during economic expansions and “bad news” during economic contractions. Unemployment news bundles information about future interest rates, equity risk premium, and corporate earnings. For stocks as a… Read more
BOOK REVIEWS: Empirical Dynamic Asset Pricing: Model Specification and Econometric Assessment / Confession of an Economic Hit Man
Empirical Dynamic Asset Pricing: Model Specification and Econometric Assessment Kenneth J. Singleton Reviewed by Cel Kulasekaran Confession of an Economic Hit Man John Perkins Reviewed by Tim Adler View PDF… Read more
The Right Answer to the Wrong Question: Identifying Superior Active Portfolio Management
W. V. Harlow and Keith C. Brown The debate over the value of active portfolio management has often centered on whether the average active manager is capable of producing returns that exceed expectations. We argue that a more useful way to frame this issue is to focus on identifying those managers who are the most… Read more
On the Financial Interpretation of Risk Contribution: Risk Budgets Do Add Up
Edward Qian Due to a lack of clear financial interpretation, there are lingering questions in the financial industry regarding the concepts of risk contribution. This paper provides as well as analyzes risk contribution’s financial interpretation that is based on expected contribution to potential losses of a portfolio. We show risk contribution, defined through either standard… Read more
PRACTITIONER’S DIGEST
Volume 4, Number 4, (2006) View PDF… Read more