Thomas S. Y. Ho and Sang Bin Lee Volume 2, Number 2, Second Quarter 2004 This paper proposes a valuation model of a bond with default risk. Extending from the Brennan and Schwartz real option model of a firm, the paper treats the firm as a contingent claim on the business risk. This paper introduces… Read more
2004
SURVEY OF THE RECENT LITERATURE: Venture Capital Syndication
Sanjiv R. Das, Hoje Jo and Yongtae Kim Volume 2, Number 4, Fourth Quarter 2004 View PDF… Read more
SURVEY OF THE LITERATURE: The Progeny of CAPM
Sanjay K. Nawalkha and Christopher Schwarz Volume 2, Number 3, Third Quarter 2004 View PDF… Read more
STREET RESEARCH: Pension Fund Management Revisited
Tony Kao Volume 2, Number 1, First Quarter 2004 View PDF… Read more
BOOK REVIEWS: The Wisdom of Crowds / The Oxford Guide to Financial Modeling
Volume 2, Number 4, Fourth Quarter 2004 The Wisdom of Crowds James Surowiecki Reviewed by Craig W. French The Oxford Guide to Financial Modeling Thomas S.Y. Ho and Sang Bin Lee Reviewed by Mark Kritzman View PDF… Read more
CASE STUDIES: The Fed Watchers
Jack L. Treynor Volume 2, Number 4, Fourth Quarter 2004 View PDF… Read more
Sifting Through the Wreckage: Lessons from Recent Hedge-Fund Liquidations
Mila Getmansky, Andrew W. Lo and Shauna X. Mei Volume 2, Number 4, Fourth Quarter 2004 We document the empirical properties of a sample of 1,765 funds in the TASS Hedge Fund database from 1977 to 2004 that are no longer active. The TASS sample shows that attrition rates differ significantly across investment styles, from… Read more
AIRAP – Alternative RAPMs for Alternative Investments
Milind Sharma Volume 2, Number 4, Fourth Quarter2004 This paper highlights the inadequacies of traditional RAPMs (risk-adjusted performance measures) and proposes AIRAP (alternative investments risk-adjusted performance), based on Expected Utility theory, as a RAPM better suited to alternative investments. AIRAP is the implied certain return that a risk-averse investor would trade off for holding risky… Read more
The Dangers of Mechanical Investment Decision-Making: The Case of Hedge Funds
Harry M. Kat Volume 2, Number 4, Fourth Quarter 2004 Over the last 20 years, investors have come to approach investment decision-making in an increasingly mechanical manner. Optimizers are filled up with historical return data and the “optimal” portfolio follows almost automatically. In this paper, we argue that such an approach can be extremely dangerous… Read more
Alternative Investments: CTAs, Hedge Funds, and Funds-of-Funds
Bing Liang Volume 2, Number 4, Fourth Quarter 2004 In this paper, we study alternative investment vehicles such as hedge funds, funds-of-funds, and commodity trading advisors (CTAs) by investigating their performance, risk, and fund characteristics. Considering them as three distinctive investment classes, we study them not only on a stand-alone basis but also on a… Read more
Extracting Portable Alphas from Equity Long/Short Hedge Funds
William Fung and David A. Hsieh Volume 2, Number 4, Fourth Quarter 2004 This paper shows empirically that Equity Long/Short (Equity L/S) hedge funds have significant alpha to both conventional as well as alternative (hedge fund-like) risk factors utilizing hedge fund data from three major data bases. Following the terminology introduced in Fung and Hsieh… Read more
Fees on Fees in Funds of Funds
Stephen J. Brown, William N. Goetzmann and Bing Liang Volume 2, Number 4, Fourth Quarter 2004 Funds of funds are an increasingly popular avenue for hedge fund investment. Despite the increasing interest in hedge funds as an alternative asset class, the high degree of fund-specific risk and the lack of transparency may give fiduciaries pause… Read more
BOOK REVIEWS: Capital–The Story of Long-Term Investment Excellence / Asset Pricing and Portfolio Performance
Volume 2, Number 3, Third Quarter 2004 Capital-The Story of Long-Term Investment Excellence Charles Ellis Reviewed by Edouard Sterling Asset Pricing and Portfolio Performance Robert Korajczyk Reviewed by Craig W. French View PDF… Read more
CASE STUDIES: Poosha-Carta Food Stores
Jack L. Treynor Volume 2, Number 3, Third Quarter 2004 View PDF… Read more
In Search of a Modigliani-Miller Economy
Kay Giesecke and Lisa R. Goldberg Volume 2, Number 3, Third Quarter 2004 The Modigliani-Miller theorem describes conditions under which the value of a firm is independent of its leverage ratio. It is one of the cornerstones of finance. A history of this result along with a modern perspective on its derivation is given in… Read more
Predictability of Long-Term Spinoff Returns
John J. McConnell and Alexei V. Ovtchinnikov Volume 2, Number 3, Third Quarter 2004 Investment strategies of buying and holding recently spun off companies and their parents have received significant attention from the investment community in the recent past. Despite their popularity, the existing evidence on the attractiveness of spinoffs appears piecemeal. In this paper… Read more
Active Risk and Information Ratio
Edward Qian and Ronald Hua Volume 2, Number 3, Third Quarter 2004 One of the underlying assumptions of the Fundamental Law of Active Management is that the active risk of an active investment strategy equates estimated tracking error by a risk model. We show there is an additional source of active risk that is unique… Read more
MaxVaR: Long-Horizon Value at Risk in a Mark-to-Market Environment
Jacob Boudoukh, Matthew Richardson, Richard Stanton and Robert F. Whitelaw Volume 2, Number 3, Third Quarter 2004 The standard VaR approach considers only terminal risk, completely ignoring the path of the portfolio value prior to this final horizon. This assumption is unrealistic interim risk may be critical in a mark-to-market environment because interim values of… Read more
The IPO Quiet Period Revisited
Daniel J. Bradley, Bradford D. Jordan, Jay R. Ritter and Jack G. Wolf Volume 2, Number 3, Third Quarter 2004 A newly public company is subject to a “quiet period,” which restricts insiders and affiliated underwriters from issuing earnings forecasts and research reports regarding the firm for a specified period following the initial public offering… Read more
BOOK REVIEWS: The Bond King: Investment Secrets From PIMCO’s Bill Gross / Portfolio Theory and Performance Analysis
Volume 2, Number 2, Second Quarter 2004 The Bond King: Investment Secrets From Pimco’s Bill Gross Timothy Middleton Reviewed by Bruce Grantier Portfolio Theory and Performance Analysis Noel Amenc and Veronique Le Sourd Reviewed by Craig W. French View PDF… Read more
CASE STUDIES: Fiduciary Funds
Jack L. Treynor Volume 2, Number 2, Second Quarter 2004 View PDF… Read more
Correlated Default Processes: A Criterion-Based Copula Approach
Sanjiv R. Das and Gary Geng Volume 2, Number 2, Second Quarter 2004 Modeling correlated default risk is a new phenomenon currently sweeping through the credit markets. In this paper, we develop a methodology to model, simulate and assess the joint default process of hundreds of issuers. Our study is based on a data set… Read more
Non-Parametric Analysis of Rating Transition and Default Data
Peter Fledelius, David Lando and Jens Perch Nielsen Volume 2, Number 2, Second Quarter 2004 Non-parametric analysis of rating transition intensities is a powerful way of visualizing such effects and is therefore useful both for quickly understanding the behavior of a rating system and for exploring data before setting up a full statistical model. In… Read more
Structural Versus Reduced Form Models: A New Information Based Perspective
Robert A. Jarrow and Philip Protter Volume 2, Number 2, Second Quarter 2004 This paper compares structural versus reduced form credit risk models from an information based perspective. We show that the difference between these two models types can be characterized in terms of the information assumed known by the modeler. Structural models assure that… Read more
Predictions of Default Probabilities in Structural Models of Debt
Hayne E. Leland Volume 2, Number 2, Second Quarter 2004 This paper examines default probabilities predicted by alternative “structural” models of risky corporate debt. We focus on default probabilities rather than credit spreads because (i) they are not affected by additional market factors such as liquidity and tax differences; and (ii) prediction of the relative… Read more
BOOK REVIEWS: Beyond the Random Walk / Investment Management Portfolio Diversification, Risk, and Timing – Fact and Fiction
Volume 2, Number 1, First Quarter 2004 Beyond the Random Walk Vijay Singal Reviewed by Mark Kritzman Investment Management Portfolio Diversification, Risk, and Timing – Fact and Fiction Robert L. Hagin Reviewed by Oliver Campbell View PDF… Read more
WORKING PAPERS: Technical Analysis
Sanjiv R. Das and David Tien Volume 2, Number 1, First Quarter 2004 View PDF… Read more
CASE STUDIES: An Invitation to the Readers of JOIM
Jack L. Treynor Volume 2, Number 1, First Quarter 2004 View PDF… Read more
Can Simple Buy and Sell Rules Increase Index Future Day Trading Profitability?
Susana Yu and Joel Rentzler Volume 2, Number 1, First Quarter 2004 Day trading index futures is popular. Two common strategies are trend-following and gap-reversal. This paper uses these strategies as “base strategies” and asks whether simple intraday exit rules can increase their profitability. Intraday stop-loss exit rules appear to add return to a trend-following… Read more
Institutional Management Fees: Are the Annual Fees You Pay For Money Management Appropriate?
Sherry L. Jarrell and Edward S. O’Neal Volume 2, Number 1, First Quarter 2004 The authors quantify and analyze the current annual fees in the institutional mutual fund industry. They identify the primary determinants of fund expenses and develop a methodology for gauging whether fees on an institutional investment are consistent with other similar alternative… Read more
Managed Futures and Hedge Funds: A Match Made in Heaven
Harry M. Kat Volume 2, Number 1, First Quarter 2004 We study the possible role of managed futures in portfolios of stocks, bonds and hedge funds. We find that allocating to managed futures allows investors to achieve a very substantial degree of overall risk reduction at, in terms of expected return, relatively limited costs. Adding… Read more
Great Moments in Financial Economics: III. Short-Sales and Stock Prices
Mark Rubinstein Volume 2, Number 1, First Quarter 2004 This is the third in a series of articles on Great Moments in Financial Economics to appear in the Journal. For each, the purpose is to trace, as well as the author can, the history of the development of an important idea. In this case, the… Read more
INSIGHTS: The Market Maker in the Age of the ECN
Wayne H. Wagner Volume 2, Number 1, First Quarter 2004 Electronic trading venues demonstrate an impressive ability to successfully match trades with high accuracy, low cost, and at remarkable speeds. Are they on track to take over the trading process, or will there always be activities better performed by human beings… Read more