Eugene Y. Lee Volume 1, Number 4, Fourth Quarter 2003 Momentum is now viewed as another factor of equity returns in addition to such factors as beta, market capitalization, and market-to-book ratio. In this paper, I propose indexation of momentum effects to pave the way for development of the momentum-based investment products and for improved… Read more
2003
Long-Run Investment Management Fee Incentives and Discriminating Between Talented and Untalented Managers
Robert Ferguson and Dean Leistikow Volume 1, Number 4, Fourth Quarter 2003 Ferguson and Leistikow [(1997). Journal of Financial Engineering 6, 1-13] (FLa) was the first long-run risk-neutral analysis of the performance volatility incentives created by investment management fee structures. This paper extends FLa in six ways. It allows the portfolio’s value to change, incorporates… Read more
Resampled Frontiers vs Diffuse Bayes: An Experiment
Harry M. Markowitz and Nilufer Usmen The experiment reported here compares two methods for handling uncertain inputs to a mean-variance analysis. Specifically, it compares Michaud’s resampled frontier versus Bayesian inference with diffuse prior. A simulated “referee” generates ten “truths” about 8 asset classes. For each truth it randomly generates one hundred histories. A simulated “Bayes… Read more
WORKING PAPER REVIEWS: Contagion
Sanjiv Ranjan Das Volume 1, Number 3, Third Quarter 2003 View PDF… Read more
CASE STUDIES: A Prudent Man
Jack L. Treynor Volume 1, Number 3, Third Quarter 2003 View PDF… Read more
Fund Managers May Cause Their Benchmarks to be Priced “Risks”
Michael Stutzer Volume 1, Number 3, Third Quarter 2003 The presence of a positive intercept (“alpha”) in a regression of an investment fund’s excess returns on a broad market portfolio’s excess return (as in the CAPM) and other “factor” portfolios’ excess returns (e.g. the Fama and French factors) is frequently interpreted as evidence of superior… Read more
Do Short Sellers Cause the Weekend Effect?
Honghui Chen and Vijay Singal Volume 1, Number 3, Third Quarter 2003 We provide a new explanation for the weekend effect. Our hypothesis is based on the contention that speculative short sellers are unwilling or less likely to hold their positions over long non-trading periods, typically the weekend. Therefore, they buy to cover on Fridays… Read more
Enhanced Equity Indexers: Common Traits and Surprising Differences
James Scott and Margaret Stumpp Volume 1, Number 3, Third Quarter 2003 This paper investigates the type of returns-based data a consultant or institutional investor would confront when analyzing an existing enhanced index manager or searching for a new one. The paper presents findings about different types of enhanced managers. Among them, and not surprisingly… Read more
Is Stock Return Predictability Spurious?
Wayne E. Ferson, Sergei Sarkissian, and Timothy Simin Volume 1, Number 3, Third Quarter 2003 Two problems, spurious regression bias and naive data mining, conspire to mislead analysts about predictive models for stock returns. This article demonstrates the two problems, how they interact, and makes suggestions for what to do about it… Read more
Time Diversification
Jack L. Treynor Volume 1, Number 1, First Quarter 2003 To maintain constant dollar risk, an investor concerned with his terminal wealth must sell when the stock market rises and buy when it falls. Although an asset with constant dollar risk doesn’t exist in nature, it can be approximated with actual investment positions… Read more