Volume 15, Number 3, 2017 Ganlin Xu This paper compares two heuristic rebalancing rules for taxable accounts. The first one is trading X percent annually. The second one is based on the result of recent research, which indicate there existence of no-trading zone. The no-trading zone is obtained by using a quadratic function to approximate… Read More
Articles
Market Timing: Sin a Little Resolving the Valuation Timing Puzzle
Volume 15, Number 3, 2017 Cliff Asness, Antti Ilmanen and Thomas Maloney Successful market timing is a tantalizing holy grail for investors, especially when there seems to be persuasive evidence that simple valuation measures can predict subsequent market performance. But, as both researchers and investors have discovered, outperforming a passive buy-and-hold approach is harder than… Read More
What is Value in an Equity Market?
Volume 15, Number 3, 2017 Michael Suen, Hany Guirguis, Stan Beckers and Ted Theodore What is value in an equity market? Among investors, there is no universally accepted definition. This paper constructs a value index for the US equity market using the Stock and Watson (1988, 1991) methodology. The new value index is derived from… Read More
Measuring Portfolio Performance: Sharpe, Alpha, or the Geometric Mean?
Moshe Levy Vol. 15, No. 3, 2017 The most popular portfolio performance measures are the Sharpe ratio and alpha. While the Sharpe ratio is optimal under the capital asset pricing model (CAPM) assumptions of normal return distributions and unlimited borrowing at the risk-free rate, we find that it is not well aligned with investors’ preferences… Read More
The Legacy of Jack Treynor: Friends Reflect
Stephen Foerster JOIM Conference Series, March 2017 / San Diego View PDF… Read More
Leaning with the Wind: Long-Term Asset Owners and Procyclical Investing
Volume 15, Number 2, 2017 Bradley A. Jones This paper seeks to shed light on the systematic investment patterns of long-term asset owners. Based on a sample of representative portfolios (totaling $24 trillion) for global central banks, U.S. public and private pension funds, U.S. insurers and U.S. endowment funds, four main findings are established. First… Read More
Horizon Effects that are Larger than You Think: Dynamic Allocation
Volume 15, Number 2, 2017 Thomas J. O’Brien This paper illustrates optimal dynamic allocation in a traditional two-fund capital market model. As in previous literature, a mean-reverting market portfolio implies a “horizon effect” in typical investors’ allocations. For investors whose risk aversion is higher than the representative investor’s, the horizon effect becomes substantially larger in… Read More
A Pitfall in Ethical Investing: ESG Disclosures Reflect Vulnerabilities, not Virtues
Volume 15, Number 2, 2017 Gerald T. Garvey, Joshua Kazdin, Ryan LaFond, Joanna Nash and Hussein Safa It is widely believed that ESG (Environmental, Social, Governance) investing reduces regulatory and reputational risks. In a large global panel, we find that business ethics controversies and regulatory issues are more likely for firms that disclose a richer… Read More
Rethinking the Fundamental Law of Active Management
Volume 15, Number 2, 2017 Jose Menchero The fundamental law of active management provides a powerful framework for analyzing portfolio diversification and risk-adjusted returns. It states that the information ratio of an unconstrained optimal portfolio is given by the product of the information coefficient (a measure of skill) and the square root of breadth, where… Read More
The Impact of Different Default Triggers on CMBS Risk Evaluation
Volume 15, Number 2, 2017 Andreas D. Christopoulos This paper presents a structural generalization for pricing commercial mortgage backed securities (CMBS) and their derivatives, CMBX. I compare results for the structural generalization with a reduced-form approach using identical data sets and analyses. My comparisons are made at both the loan and bond levels and cover… Read More