Stephen Foerster JOIM Conference Series, March 2017 / San Diego View PDF… Read More
Articles
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
Stock Portfolio Design and Backtest Overfitting
Volume 15, No. 1, 2017 David H. Bailey, Jonathan M. Borwein and Marcos López de Prado In mathematical finance, backtest overfitting connotes the usage of historical market data to develop an investment strategy, where too many variations of the strategy are tried, relative to the amount of data available. Backtest overfitting is now thought to… Read More
Picking “Winners” Funds
Volume 15, No. 1, 2017 Joshua Livnat, Gavin Smith and Martin Tarlie One of the most crucial decisions for investors and plan sponsors is the selection of funds among the thousands of available alternatives.We find that regardless of the initial criterion used to rank funds based on past performance, more diversified top funds outperform concentrated… Read More
A Machine Learning Approach to Research Curation for Investment Process
Volume 15, No. 1, 2017 Sonya Cates, Stephen Lawrence, Carla Penedo and Viktoriia Samatova Many investment professionals consider academic research instrumental in improving the quality of the investment process. However, it is hard to extract investment insights from the vast and rapidly expanding research corpus, which requires a large amount of time and human effort… Read More
Moore’s Law Vs. Murphy’s Law in the Financial System: Who’s Winning?
Volume 15, No. 1, 2017 Andrew W. Lo Breakthroughs in computing hardware, software, telecommunications, and data analytics have transformed the financial industry, enabling a host of new products and services such as automated trading algorithms, crypto-currencies, mobile banking, crowdfunding, and robo-advisors. However, the unintended consequences of technology-leveraged finance include firesales, flash crashes, botched initial public… Read More