Vol. 20, No. 4, 2022 Stephen Horan, Elroy Dimson, Clive Emery and Kenneth Blay ESG investment strategies have experienced a massive inflow of capital over the past decade despite investors having few methods to evaluate their performance and communicate their ESG values, objectives, and preferences to investment managers. This paper develops a three-dimensional performance evaluation… Read more
Articles
Carbon Emissions and Asset Management
Vol. 20, No. 4, 2022 by Ashwin Alankar and Myron Scholes Two common methods that portfolio managers use to reduce the carbon footprint of their portfolios are either to exclude carbon emitters from their portfolios or to engage/cajole underlying companies to reduce their carbon footprint by taking actions to reduce emissions. We estimate the costs… Read more
What’s in the Moneyness? Moneyness Spread and Future Stock Returns
Vol. 20, No. 3, 2022 by Zhan Li There exists a significant and positive cross-sectional relation between moneyness spread and future stock returns. Stocks with high moneyness spread outperform stocks with low moneyness spread, measured by raw and risk-adjusted returns. This predictability can last for at least 15 days, and the predictability of open interest-weighted… Read more
Just Say No to Leveraged ETFs
Vol. 20, No. 3, 2022 by Ziemowit Bednarek and Pratish Patel The daily return on a positive Leveraged Exchange-Traded Fund (LETF) is a multiple of its benchmark. We compare the risk–reward trade-off of investing in an LETF relative to the benchmark. The main contribution is straightforward: Sharpe Ratio (SR) adequately and sufficiently captures the trade-off… Read more
Portfolio Performance Attribution via Shapley Value
Vol. 20, No. 3, 2022 by Nicholas Moehle, Stephen Boyd and Andrew Ang We consider an investment process that includes a number of features, each of which can be active or inactive. Our goal is to attribute or decompose an achieved performance to each of these features, plus a baseline value. There are many ways… Read more
Tax-Rate Arbitrage: Realization of Long-Term Gains to Enable Short-Term Loss Harvesting
Vol. 20, No. 3, 2022 by Lisa Goldberg, Taotao Cai and Pete Hand We look at an enhanced loss-harvesting strategy, tax-rate arbitrage, which exploits the differential between short- and long-term tax rates. In ourstudy, we examine tax-managed strategies over numerous historical periods. For the ideal tax-rate arbitrage investor, one who is subject to the highest… Read more
Sustainable Alpha in Sovereign and Corporate Bonds
Vol. 20, No. 2, 2022 by Karishma Kaul, Katharina Schwaiger, Muling Si and Andrew Ang We construct fixed income portfolios for sovereign bonds and corporate bonds with sustainable insights. The climate methodology for sovereign bonds can be applied as an overlay on any benchmark and tilts toward sovereigns more prepared with the climate transition and… Read more
Sustainable Investing From a Practitioner’s Viewpoint: What’s in Your ESG Portfolio?
Vol. 20, No. 2, 2022 by Jeffrey R. Bohn, Lisa R. Goldberg and Simge Ulucam Many investors have shifted their asset allocations to account for Environmental, Social, and Governance (ESG) issues. While we welcome this shift from an ethical perspective, the financial and non-financial benefits of ESG investing as well as best practices for portfolio… Read more
ESG, Investing, and Corporate Finance: Some Basic Questions
Vol. 20, No. 2, 2022 by Bradford Cornell This paper is devoted primarily to asking questions about the implications of the growing focus on ESG (environment, social and governance) for investing and corporate financial policy rather than offering answers. Many of the questions raised here were anticipated by Milton Friedman in his classic New York… Read more
Exponential Glide Paths
Vol. 20, No. 1, 2022 by Moshe Levy and Haim Levy In the absence of market-timing ability, investors are better-off keeping their asset allocation constant through time. Target-date funds help reduce variation in the asset allocation, by taking into account that human capital, which is a part of the investor’s total portfolio and is typically… Read more