Volume 9, Number 4, (2011) View PDF… Read more
4th Quarter (2011)
BOOK REVIEWS: Debunkery: Learn It, Do It, and Profit From It – Seeing Through Wall Street’s Money-Killing Myths
Debunkery: Learn It, Do It, and Profit From It – Seeing Through Wall Street’s Money-Killing Myths Ken Fisher and Lara Hoffman Reviewed By Bruce Grantier View PDF… Read more
CASE STUDIES: Understanding the Middle East
Jack L. Treynor View PDF… Read more
Efficient Indexation: An Alternative to Cap-Weighted Indices
Noël Amenc, Felix Goltz, Lionel Martellini and Patrice Retkowsky This paper introduces a novel method for the construction of equity indices that, unlike their cap-weighted counterparts, offer an efficient risk/return trade-off. The index construction method goes back to the roots of modern portfolio theory and focuses on the tangency portfolio, the portfolio that weights index… Read more
Insights: What Taleb Can Learn From Markowitz
Jack L. Treynor Markowitz’ 1959 book introduced a concept of value that could actually be tested. Markowitz’s quite general conditions can lead to the Central Limit Theorem. Consider weekly returns on Markowitz’s random wheel. Then annual returns on actual prices would have 52 terms reflecting returns on value and 2 for microstructure noise. We can… Read more
Managing the Volatility of Alpha Models
Tony Elavia and Migene Kim After posting good performance for over two decades, quantitative equity investment managers have recently produced weak returns. We develop a measure of risk and show how changes in risk provide a common framework to explain factor returns and past underperformance. We find that the quantitative stock ranking models based upon… Read more
Pairs – Trading on Divergent Analyst Recommendations
Susana Yu Pairs-trading is a short-term, self-financing arbitrage strategy in which buy and sell positions are simultaneously placed on two stocks whose prices have moved temporarily apart after following a long parallel path. We develop a new pairs-trading rule based on financial analysts’ buy/hold/sell recommendations from IBES Details Recommendation Database and test it for the… Read more
Another Look at Idiosyncratic Volatility and Expected Returns
Wei Huang, Qianqiu Liu, S. Ghon Rhee and Liang Zhang We conduct comprehensive analyses of the return characteristics of stock portfolios sorted by idiosyncratic volatility. We show that the relationship between idiosyncratic volatility and expected stock returns depends on whether the portfolio is composed of stocks with extreme performance and whether the returns are computed… Read more