Vol. 19, No. 2, 2021 Arun Muralidhar Investment managers require a consistent asset pricing model, asset allocation recommendations, and risk-adjusted performance measures (or the “three facets of investing”) to be effective in managing portfolios. Incorporating three critical realities of investing into these models (i.e., that investors have many stochastic goals, seek to delegate to skillful… Read more
2021
Practitioner’s Digest
Vol. 19, No. 1, 2021 View PDF… Read more
Case Study: Pairs Trading in the Era of Meme Stocks
Vol. 19, No. 1, 2021 By Seoyoung Kim View PDF… Read more
Book Review: Beyond Diversification: What Every Investor Needs to Know About Asset Allocation
Vol. 19, No. 1, 2021 By Sébastien Page (Reviewed by Cel Kulasekaran) View PDF… Read more
Comovement, Liquidity and Asymmetries
Vol. 19, No. 1, 2021 James X. Xiong Substantially increased institutional investing and index trading in the US stock market have a meaningful impact on the mechanical relationship between return comovement and liquidity, which can be quantified by a power-law function and explained by a liquidity supply model. Three well-documented asymmetries (asymmetric volume, asymmetry in non-market… Read more
Idiosyncratic Risk and When to Tilt Toward Value
Vol. 19, No. 1, 2021 Jason D. Fink and Kristin E. Fink While the outperformance of value relative to growth portfolios has been well established, there is still debate over whether this outperformance is the result of a systematic risk factor or a behavioral tendency. The distinction is crucial to determining the expected returns of value-… Read more
Lending to Lose: Who Buys Negatively Yielding Bonds and What it Means for Investors
Vol. 19, No. 1, 2021 Vineer Bhansali I discuss the demand and supply of negatively yielding bonds, which is a recent and relatively unprecedented phenomenon in financial markets. To understand why one would lend to lose, I classify buyers into three categories, i.e. “forced buyers”, “speculators” and “non-financial government entities”. I conclude that the demand for… Read more
Investment Style Volatility and Mutual Fund Performance
Vol. 19, No. 1, 2021 Keith C. Brown, W. V. Harlow and Hanjiang Zhang We develop a holdings-based statistic to measure the volatility of a fund’s investment style characteristic profile over time. On average, funds with lower levels of style volatility significantly outperform more style-volatile funds on a risk-adjusted basis. We show that style volatility has… Read more
Insight: Active Investing and the Efficiency of Security Markets
Vol. 19, No. 1, 2021 Russ Wermers This study investigates the impact of active investment management on the efficiency of public security markets. The scholarly literature indicates that active management contributes to market efficiency, thereby providing positive externalities for all investors, including investors in passively-managed funds. Contrary to popular interpretations of Sharpe’s (1991) “active arithmetic,”… Read more