Vol 17, No. 1, 2019 Jose Menchero and Lei Ji Mean-variance optimization provides a framework for constructing portfolios that have minimum risk for a given level of expected return. The required inputs are the expected asset returns, the asset covariance matrix, and a set of investment constraints. While portfolio optimization always leads to an increase… Read More
Articles
Letter from the Editor
Letter from the Editor John (Jack) Bogle, Sr passed away on January 16, 2018. View PDF… Read More
Lessons Learned From Student Managed Portfolios
Vol. 17 No.1, 2019 Stephan Kranner , Neal Stoughton, and Josef Zechner We study asset management decisions of three competing student managed funds in Vienna, Austria for a ten-year period. This real-world experience allows us to precisely test the tournament effect of fund management, the disposition effect, and managerial team size. We find support for… Read More
Explaining Buyout Industry Returns: New Evidence
Vol. 17 No.1, 2019 David Turkington Traditional equity factors such as the leveraged equity risk premium, the small-cap premium, and the value premium have had high historical returns on average, as has the buyout fund industry in aggregate. Previous research has argued that these factors explain the excess performance of private equity over public equity… Read More
Does Extreme Correlation Matter in Global Equity Asset Allocation?
Vol. 17 No.1, 2019 Bruno Solnik and Thaisiri Watewai Global asset allocation provides risk diversification. But international market correlation increases sharply during global crises and diversification benefit disappears when it is most needed. We model these correlation breaks and derive the asset allocation implications. The model can quickly detect crises and suggests adapting allocation for… Read More
Automation, Intermediation and the Flash Crash
Vol. 16 No.4, 2018 Andrei Kirilenko, Albert S. Kyle, Mehrdad Samadi and Tugkan Tuzun The Flash Crash of May 6, 2010, shook the confidence of market participants and raised questions about the market structure of electronic markets. In these markets, intraday intermediation has been increasingly provided by market participants without formal obligations to do so. We… Read More
Trading Methods and Trading Costs for Agency Mortgage-Backed Securities
Vol. 16 No.4, 2018 Pengjie Gao, Paul Schultz and Zhaogang Song Investors can trade individual agency mortgage-backed securities (MBS) as specified pools (SPs), or trade them through TBA forward contracts. Sellers in the TBA market deliver the cheapest possible pool that fulfills the contracts, so they are traded on a cheapest to deliver basis. More… Read More
Time Aggregation of Sharpe Ratio A Better Extrapolation Rule
Vol. 16 No.4, 2018 Ziemowit Bednarek, Pratish Patel and Cyrus Ramezani The √T rule extrapolates a one-period Sharpe Ratio to T periods. But the rule ignores compounding. By considering compounding, Levy (1972) and others show that the Sharpe Ratio changes non-monotonically with horizon. We also theoretically and empirically show that the Sharpe Ratio term structure… Read More
Explaining the High P/E Ratios: The Message from the Gordon Model
Vol. 16 No.4, 2018 Heinz Zimmermann Are the high valuation levels of equity prices, after controlling for the low interest rate level, driven by irrational exuberance and excessive growth expectations? The Gordon model helps for a consistent interpretation of commonly used valuation ratios. Overall, P/E ratios do not seem to be caused by irrational growth… Read More
Vol. 16 No.4, 2018 Heinz Zimmermann Are the high valuation levels of equity prices, after controlling for the low interest rate level, driven by irrational exuberance and excessive growth expectations? The Gordon model helps for a consistent interpretation of commonly used valuation ratios. Overall, P/E ratios do not seem to be caused by irrational growth expectations… Read More