First Quarter (2008)

Robert Arnott and Jason Hsu We model a continuous time one factor economy where stock prices are noisy proxies of the informationally efficient stock values. The pricing error process is modeled as a mean-reverting process, which gives us a well-defined notion of over-pricing (positive pricing error) and under-pricing (negative pricing error) in the market. We… Read More

Paul Lajbcygier Fund size is an essential component of a funds overall value. In this work, we argue that growth in fund size results from managerial skill. To test this argument, we estimate a model that links fund growth to performance characteristics. We use the model to isolate significant performance characteristics and confirm that the… Read More

Pankaj K. Jain We document the profound impact of technology on the functioning of financial markets around the world. Specially, we report a strong trend towards fully automated trading systems. This trend is associated with a significant decline in the cost of equity capital. These findings are consistent with the notion that computerization enhances liquidity… Read More

Campbell R. Harvey, John C. Liechty and Merrill W. Liechty We replay an investment game that compares the performance of a player using Bayesian methods for determining portfolio weights with a player that uses the Monte Carlo based resampling approach advocated in Michaud (Efficient Asset Management. Boston: Harvard Business School, 1998). Markowitz and Usmen (Journal… Read More

Richard Michaud and Robert Michaud Markowitz (1959) mean-variance (MV) portfolio optimization has been the practical standard for asset allocation and equity portfolio management for almost 50 years. However it is known to be overly sensitive to estimation error in risk-return estimates and have poor out-of-sample performance characteristics. The Resampled Efficiency (RE) techniques presented in Michaud… Read More