Vol. 18, No. 3, 2020 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
2020
Correlation Shrinkage: Implications For Risk Forecasting
Vol. 18, No. 3, 2020 Jose Menchero and Peng Li In this article, we study the impact of shrinking sample correlations toward zero. We find that while such shrinkage may be beneficial from a portfolio-construction perspective, there is virtually no benefit in terms of the accuracy of risk forecasts. In fact, we show that correlation… Read more
Is Sell-Side Research More Valuable in Bad Times?
Vol. 18, No. 3, 2020 Roger K. Loh and René M. Stulz Little is known about whether the value of sell-side research is different in bad times compared to good times. Because uncertainty is high in bad times, investors find it harder to assess firm prospects and hence should value analyst output more. However, higher… Read more
Attribution of Ex-Post Realized Sharpe Ratio to The Predictability Of The Ex-Ante Forecast Return and Risk.
Vol. 18, No. 3, 2020 Masahito Shimizu We propose to use an attribution formula that enables the ex-post realized Sharpe ratio to be decomposed into realized market conditions, ex-ante predictability of the returns, risk magnitude, and risk factors. We compare the predictability of the ex-ante return and ex-ante risk directly, quantitatively identifying the main source… Read more
Case Study: Is “1 and 10” The New “2 and 20”?*
Vol. 18, No. 3, 2020 Seoyoung Kim “Case Studies” presents a case pertinent to contemporary issues and events in investment management. Insightful and provocative questions are posed at the end of each case to challenge the reader. Each case is an invitation to the critical thinking and pragmatic problem solving that are so fundamental to… Read more
Comparing Anomalies Using Liquidity and Earnings
Vol. 18, No. 3, 2020 Robert Snigaroff, David Wroblewski, and Sean Sehyun Yoo We compare three factor models and their ability to explain a set of portfolio anomalies. Two of these models are based on market capitalization which most of the industry currently uses to characterize stocks. We replace this line of thinking by utilizing… Read more
Measuring Risk Preferences and Asset-Allocation Decisions: A Global Survey Analysis
Vol. 18, No. 3, 2020 Andrew W. Lo, Alexander Remorov, and Zied Ben Chaouch We use a global survey of over 22,400 individual investors, 4,892 financial advisors, and 2,060 institutional investors between 2015 and 2017 to elicit their asset allocation behavior and risk preferences. We find substantially different behaviors among these three groups of market… Read more
Local, Global, and International CAPM: For Which Countries Does Model Choice Matter?
Volume 18, No. 2, 2020 Demissew Ejara, Alain Krapl, Thomas J. O’Brien and Santiago Ruiz de Vargas For individual stocks of 46 countries, this study investigates empirical differences in discount rate estimates between three risk–return models of interest to practitioners who perform discounted cash-flow valuation analysis: (1) the traditional (local) CAPM; (2) the global CAPM… Read more
Introduction to the Special Issue on Machine Learning
Volume 18, No. 2, 2020 Charles Elkan View PDF… Read more
Practitioner’s Digest
Volume 18, No. 2, 2020 Practitioner’s Digest View PDF… Read more