2nd Quarter (2011)

Vitaly Serbin, Milan Borkovec and Michael Chigirinskiy The goal of this paper is to study and compare two popular techniques used by practitioners to reduce the sensitivity of optimal portfolios to uncertainty in expected return for a typical portfolio optimization problem. Specifically, we investigate whether including transaction costs into the optimization problems objective function addresses… Read more

Brian T. Hayes Commodity trading advisors (CTAs) make directional investments in liquid futures and forward markets. Since CTAs generally do not engage in security selection or relative value trades, their performance depends to a large extent on funds ability to time market exposures. We analyze CTA return attribution, splitting returns into contributions from asset class… Read more

John Y. Campbell, Jens Hilscher and Jan Szilagyi In this paper, we consider the measurement and pricing of distress risk. We present a model of corporate failure in which accounting and market-based measures forecast the likelihood of future financial distress. Our best model is more accurate than leading alternative measures of corporate failure risk. We… Read more

Meir Statman A belief that markets are efficient is blamed for instigating the crisis we are in and lulling us into complacency as the crisis was approaching. But the debate about the role of such belief in the crisis is unfocused for two reasons. First, a lack of a common definition of market efficiency precludes… Read more