Vol. 17, No. 4, 2019 Yu(Ben) Meng The “Practitioner’s Digest” emphasizes the practical significance of manuscripts featured in the “Insights” and “Articles” sections of the journal. Readers who are interested in extracting the practical value of an article, or who are simply looking for a summary, may look to this section. View PDF… Read more
Fourth Quarter (2019)
Book Review: Weapons of Math Destruction: How Big Data Increases Inequality and Threatens Democracy
Vol. 17, No. 4, 2019 Cathy O’Neil (Reviewed by Savannah Smith) View PDF… Read more
Insights: The Success Equation
Vol. 17, No. 4, 2019 Yu (Ben) Meng “Insights” features the thoughts and views of the top authorities from academia and the profession. This section offers unique perspectives from the leading minds in investment management… Read more
Funding Long Shots
Vol. 17, No. 4, 2019 John Hull, Andrew W. Lo and Roger M. Stein We define long shots as investment projects with four features: (1) low probabilities of success; (2) long gestation lags before any cash flows are realized; (3) large required up- front investments; and (4) very large payoffs (relative to initial investment) in… Read more
Don’t Get Carried Away: Uncovering Macro Characteristics in Carry Portfolios
Vol. 17, No. 4, 2019 Marco Aiolfi and Yesim Tokat-Acikel Investors are increasingly showing interest in risk premia strategies across asset classes. Carry is one of the most studied premia. To successfully execute a risk premia strategy, it is important to have a detailed understanding of how individual premia returns are affected by macroeconomic conditions… Read more
Ratings versus Spreads as Indicators of Price Risk
Vol. 17, No. 4, 2019 Martin Fridson, CFA, Begum Ipek Yavuz, Kai Zhao and Yan Yu Past comparisons of “market ratings,” or yield spreads over Treasury rates, and letter grades published by credit rating agencies have focused on the two indicators’ respective records in predicting defaults or promptness in reflecting company-specific changes in credit quality… Read more
Tilt Nickels To Diamonds: An Orthogonalization Approach
Vol. 17, No. 4, 2019 Wenfeng Wu, George Xiang and Tong Yu Alternative index products often achieve improved performance at the cost of increased exposure to risk. In this study, we propose a portfolio tilting strategy that alleviates the risks inherent to alternative indices by projecting fundamental factors on risk factors to purge the influence… Read more
Surveys And Crossover – What Does the Bet Against Beta Strategy Mean in a Multi-Factor World?
Vol. 17, No. 4, 2019 Brian Ayash, Zeimowit Bednarek and Pratish Patel As of February 2019, an investor had a choice to invest in 1,043 smart beta Exchange-Traded Funds (ETFs). These ETFs depend on well-established asset-pricing anomalies. This paper provides a theoretical foundation justifying their existence. Loosely speaking, the investment strategy from the anomalies is… Read more