2nd Quarter (2015)

Wai Mun Fong and Timothy Koh Traditional asset allocations such as the 60/40 portfolio of stocks/bonds are not as well diversified as many investors believe since almost all the portfolio’s returns are driven by the stock component. This paper examines a novel approach to strategic allocation by combining stocks with low betas and high dividend… Read more

Wei Chen, Mark Kritzman and David Turkington Informed investors understand that they should hedge at least some of their portfolios’currency exposure, but the best strategy for doing so remains an open question. We investigate a variety of currency hedging strategies, including linear strategies, non-linear strategies, and combinations thereof, for the purpose of helping investors determine… Read more

Daniel Mantilla-García We solve the growth-rate optimal multiplier of a portfolio insurance strategy in the general case with a locally risky reserve asset and stochastic state variables. The level of the optimal time-varying multiplier turns out to be lower than the standard constant multiplier of Constant Proportion Portfolio Insurance (CPPI) for common parameter values. As… Read more

Thomas S. Y. Ho and Sang Bin Lee This paper provides a structural macro-financial model that can be used for the cost and benefit analysis of alternative financial regulatory regimes. The model solves for the optimal financial sector size to the real aggregate asset (household leverage) and to the aggregate capital (financial leverage) that maximize… Read more

Thomas S.Y. Ho and Sang Bin Lee This paper proposes an equity index contingent claim model. The model assumes that the equity broad-based market indices’stochastic movements are contingent to macroeconomic risk factors that are derived from Ho et al.’s (HPS, 2012, 2013) and Ho and Lee’s (HL, 2015b, 2015c) theoretical models. The results show that… Read more