Volume 6, Number 1, First Quarter 2008 The Little Book of Value Investing Christopher Browne Reviewed by Javier Estrada The Little Book of Common Sense Investing John Bogle Reviewed by Javier Estrada View PDF… Read more
First Quarter (2008)
CASE STUDIES
Jack L. Treynor View PDF… Read more
Noise, CAPM and the Size and Value Effects
Robert Arnott and Jason Hsu Volume 6, Number 1, First Quarter 2008 We model a continuous time one factor economy where stock prices are noisy proxies of the informationally efficient stock values. The pricing error process is modeled as a mean-reverting process, which gives us a well-defined notion of over-pricing (positive pricing error) and under-pricing… Read more
A Model of Fund Growth For Managed Futures: Evidence of Managerial Skill
Paul Lajbcygier Volume 6, Number 1, First Quarter 2008 Fund size is an essential component of a funds overall value. In this work, we argue that growth in fund size results from managerial skill. To test this argument, we estimate a model that links fund growth to performance characteristics. We use the model to isolate… Read more
The Profound Effects of Automation on Stock Markets Around the World
Pankaj K. Jain Volume 6, Number 1, First Quarter 2008 We document the profound impact of technology on the functioning of financial markets around the world. Specially, we report a strong trend towards fully automated trading systems. This trend is associated with a significant decline in the cost of equity capital. These findings are consistent… Read more
Bayes vs. Resampling: A Rematch
Campbell R. Harvey, John C. Liechty and Merrill W. Liechty Volume 6, Number 1, First Quarter 2008 We replay an investment game that compares the performance of a player using Bayesian methods for determining portfolio weights with a player that uses the Monte Carlo based resampling approach advocated in Michaud (Efficient Asset Management. Boston: Harvard… Read more
Estimation Error and Portfolio Optimization: A Resampling Solution
Richard Michaud and Robert Michaud Volume 6, Number 1, First Quarter 2008 Markowitz (1959) mean-variance (MV) portfolio optimization has been the practical standard for asset allocation and equity portfolio management for almost 50 years. However it is known to be overly sensitive to estimation error in risk-return estimates and have poor out-of-sample performance characteristics. The… Read more
INSIGHTS: Why is There a Home Bias? Count the Teeth!
Jitka Hilliard and Jimmy E. Hilliard Volume 6, Number 1, First Quarter 2008 Under somewhat idealized conditions, investors would achieve the best risk return tradeoff by allocation equity investment in each country equal to its percentage share of world equity capitalization. But factual evidence confirms that domestic investors prefer domestic stocks. For example, domestic investors… Read more