Volume 15, No. 1, 2017 Burton G. Malkiel Fully automated investment services provide automated investment management. Selected portfolios are low-cost and are rebalanced, tax managed and optimized, consistent with an investor’s goals and risk tolerance. Everything, including deposits, withdrawals, transfers, and reporting, is handled electronically. The substantial advantages made available by technology are enumerated. … Read more
2016
Mean–Variance Optimization with Public and Private Asset Classes
Volume 14, Number 4, 2016 Yu (Ben) Meng, Pu (Paul) Zhang and Ryan Ong Liquidity has long been of great interest to investment professionals as well as academic researchers. The estimation of the illiquidity premium for infrequently traded asset classes, such as real estate and private equity, presents a challenge to the industry because of… Read more
Can Fundamental Factors Enhance the Performance of Traditional Momentum Strategies?
Volume 14, Number 4, 2016 Susana Yu and Gwendolyn Webb We test whether price-based momentum strategies can be improved by additional screening based on fundamental measures. Within the framework of portfolio formation based on recent winning or losing stocks, we further screen on the basis of fundamental measures of financial strength and gross profitability. Our… Read more
A New Look at Discount Returns: Implications for the Global Investor
Volume 14, Number 4, 2016 Anthony Tessitore and Nilufer Usmen This paper examines risk–return characteristics of discount returns on portfolios of closed end funds and how they might benefit investors. Discount return is defined as the percentage change in discounts over a period. This paper focuses on the distribution of discount returns conditioned on discount… Read more
The Road Not Taken
Volume 14, Number 4, 2016 Craig French… Read more
PRACTITIONER’S DIGEST
Volume 14, Number 4, Fourth Quarter 2016 View PDF… Read more
The Economics of Flash Orders and Trading
Lawrence E. Harris and Ethan Namvar Volume 14, Number 4, 2016 View PDF… Read more
Book Review – God’s Own Arithmetic: Harry Markowitz’ Risk-Return Analysis
BOOK REVIEW God’s Own Arithmetic: Harry Markowitz’ Risk-Return Analysis Reviewed by Craig W. French Volume 14, Number 4, Fourth Quarter 2016 View PDF… Read more
Business Models to Cure Rare Disease: A Case Study of Solid Biosciences
Esther S. Kim and Andrew W. Lo Volume 14, Number 4 , Four Quarter 2016 View PDF… Read more
After-Tax Portfolio Value: The Missing Tax Option
Andrew Kalotay Volume 14, Number 4, 2016 After-tax performance measurement requires a rigorous definition of after-tax portfolio value, which is also a prerequisite for effective portfolio management. The focus of this paper is the tax option, which is the right to execute tax-beneficial transactions. This option is a critical component of after-tax portfolio value. Some… Read more
Mass Customization Versus Mass Production – How an Industrial Revolution is About to Take Place in Money Management and Why it Involves a Shift From Investment Products to Investment Solutions
Volume 14, Number 3, Third Quarter 2016 Lionel Martellini While mass production has happened a long time ago in investment management through the introduction of mutual funds and more recently exchange traded funds, a new industrial revolution is currently under way, which involves mass customization, a production and distribution technique that will allow individual investors… Read more
Correlation or Causation?: The Sorry State of Inference in Empirical Modeling
Volume 14, Number 3, 2016 Xiaojing Dong and John Heineke For decades, statistical methods, many based upon the “general linear model,” have been used to do estimation and test hypotheses in the social and natural sciences, in medicine, and in the private sector. These tools have become increasingly sophisticated and are often paired with powerful… Read more
Case Study – Developing Countries
Case Study Volume 14, Number 3 , Third Quarter 2016 View PDF… Read more
Book Review – Misbehaving The Making of Behavioral Economics
BOOK REVIEW Misbehaving The Making of Behavioral Economics (by Richard Thaler) Reviewed by Javier Estrada Volume 14, Number 3 , Third Quarter 2016 View PDF… Read more
The Profitable Dividend Yield Strategy
Volume 14, Number 3, Third Quarter 2016 Wai Mun Fong and Zhehan Ong Stocks with high dividend yield (DY) have value-like returns and defensive qualities that make them highly attractive to investors. We show that this investment strategy can be powerfully enhanced by choosing stocks with both highDY and high gross profits-to-assets (GPA). Consistent with… Read more
It’s Easy to Beat the Market
Volume 14, Number 3, Third Quarter 2016 Moshe Levy The perception that it’s hard to beat the market portfolio is widespread. Indeed, passive investment has more than doubled in the last decade. While various different strategies have been suggested to outperform passive indexing, the market is still considered by many as the relevant benchmark to… Read more
How Do Private Equity Investments Perform Compared to Public Equity?
Volume 14, Number 3, Third Quarter 2016 Robert S. Harris, Tim Jenkinson and Steven N. Kaplan The merits of investing in private versus public equity have generated considerable debate, often fueled by concerns about data quality. In this paper, we use cash flow data derived from the holdings of almost 300 institutional investors to study… Read more
PRACTITIONER’S DIGEST
PRACTITIONER’S DIGEST Volume 14, Number 3 , Third Quarter 2016 View PDF… Read more
PRACTITIONER’S DIGEST
Volume 3, Number 4, Third Quarter 2005 View PDF… Read more
Market Risk, Mortality Risk, And Sustainable Retirement Asset Allocation: A Downside Risk Perspective
Volume 14, Number 2, 2016 W. V. Harlow and Keith C. Brown Despite its clear importance, there is no consensus on the optimal asset allocation strategy for retirement investors of varying age, gender, and risk tolerance. This study analyzes the allocation question by focusing on the downside risks that result from the joint uncertainty over… Read more
Combining Value And Momentum
Volume 14, Number 2, 2016 Gregg Fisher, Ronnie Shah and Sheridan Titman This paper considers several popular portfolio implementation techniques that maximize exposure to value and/or momentum stocks while taking into account transaction costs. Our analysis of long-only strategies illustrates how a strategy that simultaneously incorporates both value and momentum outperforms a strategy that combines… Read more
Factor Misalignment And Portfolio Construction
Volume 14, Number 2, 2016 Jose Menchero In recent years, there has been heightened interest among practitioners in the topic of factor misalignment; this term refers to the practice of employing mean-variance optimization to construct portfolios when the alpha signal is not contained within the set of risk model factors. In this paper, we employ… Read more
Price Dynamics And Liquidity Of Exchange-Traded Funds
Volume 14, Number 2, 2016 Ananth Madhavan and Aleksander Sobczyk Exchange-traded funds (ETFs) have grown substantially in diversity, market significance, and size in recent years. As a consequence, there is increased interest by practitioners in the pricing and trading of these investment vehicles. This paper develops a model to examine ETF price discovery and premium… Read more
Portfolio Diversification In Concentrated Bond And Loan Portfolios
Volume 14, Number 2, 2016 Paul Kupiec I develop an algorithm to approximate the loss rate distribution for fixed income portfolios with obligor concentrations. The approximation requires no advanced mathematics or statistics, only the summation of large exposures and the evaluation of binomial probabilities. The approximation is model-independent and can be used after removing default… Read more
CASE STUDIES: Why Social Scientists Are Different From Physical Scientists
Jack Treynor Volume 14, Number 2, 2016 View PDF… Read more
BOOK REVIEW: The Big Short: Inside The Doomsday Machine (By Michael Lewis)
Craig French Volume 14, Number 2, 2016 The Big Short: Inside The Doomsday Machine (By Michael Lewis) View PDF… Read more
PRACTITIONER’S DIGEST
Volume 14, Number 2, 2016 View PDF… Read more
PRACTITIONER’S DIGEST
Volume 14, Number 1, 2016 View PDF… Read more
BOOK REVIEW: Global Asset Allocation: A Survey of theWorld’s Top Asset Allocation Strategies (by Mebane Faber)
Javier Estrada Volume 14, Number 1, 2016 Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies (by Mebane Faber) View PDF… Read more
CASE STUDIES: “Case”Weatherman’s Bias
Jack Treynor Volume 14, Number 1, 2016 View PDF… Read more
Optimal Municipal Bond Portfolios for Dynamic Tax Management
Volume 14, Number 1, 2016 Andrew Kalotay As currently practiced, tax-loss selling of municipal bonds is typically an ad hoc year-end exercise. Under dynamic tax management the right to execute a tax-beneficial trade is considered to be a valuable option. Selling a bond and reinvesting in another entails swapping the associated tax options. The generalized… Read more
The Information Content of Analysts’ Recommendations Revisited
Volume 14, Number 1, 2016 Daniel Bradley, Jonathan Clarke, Suzanne Lee and Chayawat Ornthanalai Bradley et al. (BCLO, 2014) find evidence that the time stamps reported in I/B/E/S for analysts’ recommendations are systematically delayed giving the appearance that recommendations are uninformative.We review the findings of BCLO and extend their analyses along three dimensions. First, we… Read more
The Self-Fulfilling Prophecy of Popular Asset Pricing Models
Volume 14, Number 1, 2016 Bradford Cornell and Jason Hsu The assumption that asset prices are determined by the efforts of end investors to maximize intertemporal utility supports a pricing theory that is both elegant and intuitive. Unfortunately, the assumption is counterfactual. End investors, with few exceptions, lack the capacity to behave in a fashion… Read more
Tax-Cognizant Portfolio Analysis: A Methodology for Maximizing After-Tax Wealth
Kenneth A. Blay and Harry M. Markowitz Volume 14, Number 1, 2016 The most prevalent methods of incorporating taxes into the portfolio construction process are the preliminary adjustment of asset allocation inputs for taxes and the post-optimization application of asset location heuristics. We argue that these methods are unsatisfactory in that they fail to address… Read more
INSIGHTS: By the Numbers: 10 Things My Hobbies Have Taught Me About Investing
Volume 14, Number 1, 2016 Vineer Bhansali I discuss ten common themes between non-investment related activities that shed practical and useful light on investing. While readers might not be familiar with these particular activities, I believe that combining analogies from any accumulated skill in intrinsically rewarding activities (also known as hobbies), with a disciplined analytical… Read more