Volume 15, Number 4, 2017 View PDF… Read more
2017
Machine Learning in Finance: The Case of Deep Learning for Option Pricing
Volume 15, Number 4, 2017 Robert Culkin and Sanjiv R. Das View PDF… Read more
Behavioral Risk Management: Managing the Psychology that Drives Decisions and Influences Operational Risk
Volume 15, Number 4, 2017 By Hersh Shefrin, Reviewed by Cel Kulasekaran View PDF… Read more
Pricing for Survival in the Biopharma Industry: A Case Study of Acthar Gel and Questcor Pharmaceuticals
Volume 15, Number 4, 2017 Terence C. Burnham, Samuel Huang and Andrew W. Lo Recent cases of aggressive pricing behavior in the biopharmaceutical industry have raised serious concerns among payers and policymakers about industry ethics. However, these cases should not be confused with price increases motivated by challenging business conditions that ultimately lead to greater… Read more
The Impact of Costs on Recent Target Date Fund Performance
Volume 15, Number 4, 2017 C. Edward Chang, Thomas M. Krueger and Mark A. Wrolstad Target date funds (TDFs) are rapidly becoming a common means to prepare for retirement. Given the swelling demand for these funds, this research is a timely look at TDFs’ most recent decade. As of March 2016, 518 TDFs have been… Read more
Investment Horizon Risk and Volatility Metrics
Volume 15, Number 4, 2017 Robert Korkie We re-examine the literatures’ disparate conclusions that stock returns are more (less) volatile over longer investment horizons. We claim that the commonly employed variance ratio is incapable of generally determining whether investment risk increases with investment horizon. We demonstrate that the use of effective returns and standard deviation… Read more
A Portfolio Strategy with Hedge Funds and Liquid Alternatives
Volume 15, Number 4, 2017 E. William Stone and Paul J. White The advent of liquid alternatives in mutual fund format in recent years has brought with it challenges and opportunities with regards to portfolio strategy. Interpretation of these vehicles as return enhancers or risk diversifiers can lead to very different approaches in portfolio construction… Read more
How to Calibrate the Risk of Buyout Investments? Through Buyout-Backed Initial Public Offerings
Volume 15, Number 4, 2017 Jean-François L’Her, Ram Karthik and Stéphanie Desrosiers This paper proposes to use the public market returns of buyout-backed initial public offerings (BO-backed IPOs) as a proxy for buyout funds’ appraisal-based returns. Because they provide an economically significant route to exit, and their leverage and fund ownership are still significant three… Read more
Case Study – Portfolio Manager Selection
Volume 15 , Number 3, 2017 Michael Christensen View PDF… Read more
Book Review – The Index Revolution –Why Investors Should Join it Now
Volume 15 , Number 3, 2017 The Index Revolution –Why Investors Should Join it Now by Charles Ellis. Reviewed by Javier Estrada. View PDF… Read more
Practitioner’s Digest
Volume 15, Number 3, Third Quarter 2017 View PDF… Read more
Multi-Period Portfolio Rebalancing with Personal Tax
Volume 15, Number 3, 2017 Ganlin Xu This paper compares two heuristic rebalancing rules for taxable accounts. The first one is trading X percent annually. The second one is based on the result of recent research, which indicate there existence of no-trading zone. The no-trading zone is obtained by using a quadratic function to approximate… Read more
Market Timing: Sin a Little Resolving the Valuation Timing Puzzle
Volume 15, Number 3, 2017 Cliff Asness, Antti Ilmanen and Thomas Maloney Successful market timing is a tantalizing holy grail for investors, especially when there seems to be persuasive evidence that simple valuation measures can predict subsequent market performance. But, as both researchers and investors have discovered, outperforming a passive buy-and-hold approach is harder than… Read more
What is Value in an Equity Market?
Volume 15, Number 3, 2017 Michael Suen, Hany Guirguis, Stan Beckers and Ted Theodore What is value in an equity market? Among investors, there is no universally accepted definition. This paper constructs a value index for the US equity market using the Stock and Watson (1988, 1991) methodology. The new value index is derived from… Read more
Measuring Portfolio Performance: Sharpe, Alpha, or the Geometric Mean?
Moshe Levy Vol. 15, No. 3, 2017 The most popular portfolio performance measures are the Sharpe ratio and alpha. While the Sharpe ratio is optimal under the capital asset pricing model (CAPM) assumptions of normal return distributions and unlimited borrowing at the risk-free rate, we find that it is not well aligned with investors’ preferences… Read more
The Legacy of Jack Treynor: Friends Reflect
Stephen Foerster JOIM Conference Series, March 2017 / San Diego View PDF… Read more
In Memory of Stephen A. Ross
Volume 15, Number 2, 2017 Stephen Foerster JOIM Conference Series, March 2017 / San Diego View PDF… Read more
Case Study – The Rational Investor
Volume 15, Number 2, 2017 Craig French View PDF… Read more
Book Review – Book of Value: The Fine Art of Investing Wisely 2016
Volume 15, Number 2, 2017 Book of Value: The Fine Art of Investing Wisely 2016 by Anurag Sharma Reviewed by Bruce Grantier View PDF… Read more
Practitioner’s Digest
Volume 15, Number 2, Second Quarter 2017 View PDF… Read more
Leaning with the Wind: Long-Term Asset Owners and Procyclical Investing
Volume 15, Number 2, 2017 Bradley A. Jones This paper seeks to shed light on the systematic investment patterns of long-term asset owners. Based on a sample of representative portfolios (totaling $24 trillion) for global central banks, U.S. public and private pension funds, U.S. insurers and U.S. endowment funds, four main findings are established. First… Read more
Horizon Effects that are Larger than You Think: Dynamic Allocation
Volume 15, Number 2, 2017 Thomas J. O’Brien This paper illustrates optimal dynamic allocation in a traditional two-fund capital market model. As in previous literature, a mean-reverting market portfolio implies a “horizon effect” in typical investors’ allocations. For investors whose risk aversion is higher than the representative investor’s, the horizon effect becomes substantially larger in… Read more
A Pitfall in Ethical Investing: ESG Disclosures Reflect Vulnerabilities, not Virtues
Volume 15, Number 2, 2017 Gerald T. Garvey, Joshua Kazdin, Ryan LaFond, Joanna Nash and Hussein Safa It is widely believed that ESG (Environmental, Social, Governance) investing reduces regulatory and reputational risks. In a large global panel, we find that business ethics controversies and regulatory issues are more likely for firms that disclose a richer… Read more
Rethinking the Fundamental Law of Active Management
Volume 15, Number 2, 2017 Jose Menchero The fundamental law of active management provides a powerful framework for analyzing portfolio diversification and risk-adjusted returns. It states that the information ratio of an unconstrained optimal portfolio is given by the product of the information coefficient (a measure of skill) and the square root of breadth, where… Read more
The Impact of Different Default Triggers on CMBS Risk Evaluation
Volume 15, Number 2, 2017 Andreas D. Christopoulos This paper presents a structural generalization for pricing commercial mortgage backed securities (CMBS) and their derivatives, CMBX. I compare results for the structural generalization with a reduced-form approach using identical data sets and analyses. My comparisons are made at both the loan and bond levels and cover… Read more