Vol. 21, No. 4, 2023 By Ray Dalio (Reviewed by Fangzhong Liu ) View PDF… Read more
2023
Tradeoffs in Goosing the IRR
Vol. 21, No. 4, 2023 Ivan Asensio and 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… Read more
Realativity in Finance: Goals and Risk-Based Asset Pricing for Investors with Multiple Stochastic Goals and Agents
Vol. 21, No. 4, 2023 Arun Muralidhar This asset pricing model incorporates four positive realities of investing; that investors have many stochastic goals, seek to delegate to skillful agents, explicitly specify risk budgets, and maximize risk-adjusted relative returns. As a result, it also incorporates the relative nature of investing—“Realativity”. Critical to investment practice, it provides… Read more
The Diminishing Role of Active Mutual Funds: Flows and Returns
Vol. 21, No. 4, 2023 James X. Xiong, Thomas M. Idzorek and Roger G. Ibbotson U.S. active equity mutual funds have experienced net outflows since around 2006. The AUM-weighted performance remains similar over time, but equal-weighted performance (which emphasizes small AUM active funds) has deteriorated. Inflows/outflows contribute to the over/underperformance of individual active funds. We… Read more
Reimagining Index Funds
Vol. 21, No. 4, 2023 Rob Arnott, Chris Brightman, Xi Liu and Que Nguyen “Gold-standard” cap-weighted indices have a buy-high and sell-lowdynamic that causes a structural long-term performance drag. Of course,relative to itself, no index can underperform, which is the reason it goes unnoticed. If we use a company’s fundamentals to choose stocks—and then cap-weights… Read more
Grow The Pool: Diverse Directors Associated with Stronger Performance, but not if they are Too Busy
Vol. 21, No. 4, 2023 Mouhamadou M. Ba, Gerald T. Garvey, Brett Z. Miller and Katharina J. Schwaiger Minority representation on US boards has grown more than 50% in the last eight years, but this reflects an increase in the number of seats for existing minority directors as much as a diversification of the director… Read more
Practitioner’s Digest
Practitioner’s Digest Vol. 21, No. 4, 2023 View PDF… Read more
Case Study: Investment Management Lessons Learned From the Management and Mismanagement of Impending Bank Runs
Vol. 21, No. 3, 2023 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
Book Review: Trillions
Vol. 21, No. 3, 2023 By Robin Wigglesworth (Reviewed by Javier Estrada) View PDF… Read more
The Determinants of Inflation
Vol. 21, No. 3, 2023 William Kinlaw, Mark Kritzman, Michael Metcalfe and David Turkington The authors apply a Hidden Markov Model to identify regimes of shifting inflation and then employ an attribution technique based on the Mahalanobis distance to identify the economic variables that dynamically determine the trajectory of inflation. Their analysis enables policymakers to… Read more
Asset Allocation with Non-Pecuniary ESG Preferences: Efficiently Blending Value with Values
Vol. 21, No. 3, 2023 Douglas M. Grim, Giulio Renzi-Ricci and Anna Madamba The explosion of interest in ESG investing has yielded several quantitative frameworks that seek to incorporate non-pecuniary ESG preferences into conventional multi-asset portfolio optimization models. In this article, the authors specify an accessible approach that allows investors to simultaneously optimize for both… Read more
Efficient Goal Probabilities: A New Frontier
Vol. 21, No. 3, 2023 Sanjiv Das, Daniel Ostrov, Anand Radhakrishnan and Deep Srivastav In goals-based wealth management (GBWM), an investor looks to maximize the probabilities of attaining each of n goals over time. Because the goals are in competition for potentially limited financial resources, their relative importance must be specified, which we do by… Read more
Are 60/40 Portfolio Returns Predictable?
Vol. 21, No. 3, 2023 Jamil Baz, Steve Sapra and German Ramirez Long-horizon asset class returns are reasonably predictable using simple models of expected return. However, equity returns over the last decade far exceeded model-based predictions. We posit a framework for the drivers of potential mean-reversion in equity returns. We believe increases in real bond… Read more
Practitioner’s Digest
Vol. 21, No. 3, 2023 Practitioner’s Digest View PDF… Read more
Review – Healthcare Finance: Modern Financial Analysis for Accelerating Biomedical Innovation
Vol. 21, No 2, 2023 by Andrew W. Lo and Shomesh E. Chaudhuri (Reviewed by Piyush Kontu ) Book Review View PDF… Read more
Case Study: Bitcoin ETFS: The Pros and Cons of a Spot ETF Versus a Futures ETF
Vol. 21, No 2, 2023 by Seoyoung Kim Case Study View PDF… Read more
Trading with the Informed and Against the Uninformed: Flows and Positioning in the Global Currency Market
Vol. 21, No 2, 2023 by Aldo Barrios, Rob Franolic, Davide Giovanardi and Michael Melvin FX trade settlement data from CLS provides the most comprehensive view of the opaque market of OTC currency trades. We use the flows of investment funds and non-financial corporates and develop trading signals where the former reflects speculative strategies, while… Read more
Is Index Concentration an Inevitable Consequence of Market-Capitalization Weighting?
Vol. 21, No 2, 2023 by Lisa R. Goldberg, Ananth Madhavan, Harrison Selwitz and Alexander Shkolnik Market-cap-weighted equity indexes are ubiquitous. However, there are growing concerns that such indexes are increasingly concentrated in a few stocks. We ask: Does market-cap weighting inevitably lead to increased concentration overtime? The question of inevitability arises from research that… Read more
Insight: A Practitioner’s Guide to Address Fat Tails and Downside Risk in Portfolio Construction
Vol. 21, No 2, 2023 by Eva A. Xu and Eric L. Tarkin Standard models of risk and return are known to underestimate the frequency of extreme events and cannot account for the observed phenomena of increasing correlations in times of stress. This was most salient during the global financial crisis. Despite all of this… Read more
Practitioner’s Digest
Vol. 21, No 2, 2023 Practitioner’s Digest View PDF… Read more
The Math Gender Gap and Women’s Career Outcome
Vol 21, No, 2, 2023 by Renée B. Adams, Brad M. Barber and Terrance Odean We show that the gender gap in mathematics is related to women’s career outcomes. The math gender gap predicts the proportion of women in the investment profession across countries and across states in the US. Our results suggest that societal… Read more
Book Review: Prediction Revisited: The Importance of Observation, 1st Edition
Vol.21, No.1, 2023 by Mark P. Kritzman, David Turkington and Megan Czasonis (Reviewed by Kenneth Winston) Prediction Revisited is a delightfully nonlinear romp through the basics of linear statistical inference. Its stated goal is to reframe the subject with a relevance-weighted approach. But there’s a second goal: to emulate the singer Mark Anthony. Mark Anthony… Read more
Financing Fusion Energy
Vol.21, No.1, 2023 by Abdullah Alhamdan, Zachery M. Halem, Irene Hernandez, Andrew W. Lo, Manish Singh and Dennis Whyte The case for investing in fusion energy has never been greater, given increasing global energy demand, high annual carbon dioxide output, and technological limitations for wind and solar power. Nevertheless, financing for fusion companies through traditional… Read more
The Role of Options in Goals-Based Wealth Management
Vol.21, No.1, 2023 by Sanjiv R. Das and Greg Ross We develop a methodology using dynamic programming for goals-based wealth management over long horizons where portfolio rebalancing uses the standard securities and also derivative securities. A kernel density estimation approach is developed to accommodate derivative assets, solving a high-dimensional problem with fast computation. The approach… Read more
How Inefficient is the 1/N Strategy for a Factor Investor?
Vol.21, No.1, 2023 by Kevin Khang, Antonio Picca, Shaojun Zhang and Minzhi Zhu The last decade’s dramatic democratization of factor investing has broadened its investor base to individual investors and their advisors. This paper studies the performance of classic allocation strategies—1/N, mean–variance, and minimum-variance—from these investors’ perspective. Specifically, we curate commonly available long-only factor funds… Read more
Leveraging Text Mining to Extract Insights from Earnings Call Transcripts
Vol.21, No.1, 2023 by Andrew Chin and Yuyu Fan We apply text-mining techniquesin earnings call transcriptsto extract meaningful features that capture management and investment community signals. Using a corpus of transcripts of earnings calls for global companies from 2010 to 2021, we create fundamentally driven features spanning document attributes, readability, and sentiment on different sections… Read more
Practitioner’s Digest
Vol.21, No.1, 2023 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