Volume 11, Number 1, First Quarter 2013 Finance and the Good Society Robert J. Shiller Reviewed by Bruce Grantier View PDF… Read more
First Quarter (2013)
CASE STUDIES: Marginal Propensity to Consume
Jack L. Treynor Volume 11, Number 1, First Quarter 2013 View PDF… Read more
Put Option Exercise and Short Stock Interest Arbitrage
Kathryn Barraclough and Robert E. Whaley Volume 11, Number 1, First Quarter 2013 U.S. exchange-traded stock options are exercisable before expiration. While put options should frequently be exercised early to earn interest, they are not. In this paper, we explain an early exercise decision rule and then examine actual exercise behavior during the period January… Read more
VarGamma: A Unified Measure of Portfolio Risk
Kent Osband Volume 11, Number 1, First Quarter 2013 Most portfolio risk analysis implicitly assumes that risks are stable, despite copious evidence of instability. This article presents an alternative, VarGamma, that provides neat formulas for certainty equivalents (risk-adjusted returns) even with stochastic volatility and volatility-dependent drift. VarGamma measures are far more flexible and robust than… Read more
Stock Strategies with the January Barometer and the Yield Curve
Licheng Sun, Chris Stivers and Ajay Kongera Volume 11, Number 1, First Quarter 2013 The January Barometer states that the sign of the stock-markets returns in January can predict the subsequent 11-month stock-market return over February to December. Cooper et al. (2010) show that the best way to use the January Barometer is to be… Read more
Investing in What You Know: The Case of Individual Investors and Local Stocks
Mark S. Seasholes and Ning Zhu Volume 11, Number 1, First Quarter 2013 This paper tests the performance of individuals’ equity investments. We study over 40,000 accounts and 950,000 trades from a large discount broker. Individuals invest heavily in local stocks and put 14% more into these stocks than a market-neutral portfolio would suggest. Using… Read more
Deconstructing Black-Litterman: How to Get the Portfolio You Already Knew You Wanted
Richard O. Michaud, David N. Esch and Robert O. Michaud Volume 11, Number 1, First Quarter 2013 The Markowitz (1952, 1959) mean-variance (MV) efficient frontier has been the theoretical standard for defining portfolio optimality for more than a half century. However, MV optimized portfolios are highly susceptible to estimation error and difficult to manage in… Read more
SURVEYS AND CROSSOVERS: Bayesian Modeling in Finance
Xiaojing Dong and Carrie H. Pan Volume 11, Number 1, First Quarter 2013 The Bayesian statistical method provides an alternative approach to study some of the classical problems in finance. In the existing finance literature, research that uses Bayesian econometrics is primarily in the area of asset pricing. Bayesian applications in corporate finance have been… Read more
PRACTITIONER’S DIGEST
Volume 11, Number 1, First Quarter 2013 View PDF… Read more