November 8, 2012 - Strategic Allocation
How can a risk parity allocation strategy, equally weighting portfolio components by expected risk contribution, not really spread risk? In their October 2012 paper entitled “The Risk in Risk Parity: A Factor Based Analysis of Asset Based Risk Parity”, Vineer Bhansali, Josh Davis, Graham Rennison, Jason Hsu and Feifei Li examine the essential return and risk drivers… Keep Reading
November 6, 2012 - Big Ideas, Size Effect, Value Premium
How can equity weighting strategies and their opposites both outperform the stock market? In the October 2012 version of their paper entitled “The Surprising ‘Alpha’ from Malkiel’s Monkey and Upside-down Strategies”, Rob Arnott, Jason Hsu, Vitali Kalesnik and Phil Tindall challenge beliefs underlying a variety of stock investment strategies that beat a capitalization-weighted benchmark by examining… Keep Reading
November 5, 2012 - Equity Premium, Strategic Allocation
How can positions in emerging equity markets benefit investment portfolios? In their October 2012 paper entitled “How Large are the Benefits of Emerging Market Equities?”, Mitchell Conover, Gerald Jensen and Robert Johnson examine the returns of emerging equity markets with focus on: (1) performance measures that account for return distribution risk and abnormalities; (2) performance… Keep Reading
November 2, 2012 - Technical Trading
Adam Grimes (Chief Investment Officer of Waverly Advisors) prefaces his 2012 book, The Art and Science of Technical Analysis: Market Structure, Price Action, and Trading Strategies, by stating: “This book…offers a comprehensive approach to the problems of technically motivated, directional trading. …Trading is hard. Markets are extremely competitive. They are usually very close to efficient and most… Keep Reading
November 1, 2012 - Strategic Allocation, Volatility Effects
Do allocations aimed at managing volatility beat simple equal weighting as applied to the cheapest third of 32 country stock markets based on 10-year cyclically adjusted price-to-earnings ratio (CAPE, or P/E10). In their October 2012 paper entitled “Global CAPE Model Optimization”, Adam Butler, Michael Philbrick, Rodrigo Gordillo and Mebane Faber compare the following six volatility management strategies… Keep Reading
October 30, 2012 - Sentiment Indicators
Do investors under stress herd, thereby driving return correlations upward? In their October 2012 paper entitled “Quantifying the Behavior of Stock Correlations Under Market Stress”, Tobias Preis, Dror Kenett, Eugene Stanley, Dirk Helbing and Eshel Ben-Jacob relate average stock return correlations to stock market conditions with focus on dramatic market losses. Specifically, they calculate the average Pearson… Keep Reading
October 29, 2012 - Volatility Effects
Do low-volatility stocks outperform high-volatility stocks around the globe? In their October 2012 paper entitled “Stock Return Volatility, Operating Performance and Stock Returns: International Evidence on Drivers of the ‘Low Volatility’ Anomaly”, Tanuj Dutt and Mark Humphery-Jenner investigate links among stock return volatility, stock returns and firm operating performance in emerging and developed markets outside North America…. Keep Reading
October 26, 2012 - Strategic Allocation
What is the most important aspect of long-term investing? In the July 2012 version of his paper entitled “Strategic Asset Allocation and Portfolio Performance”, Lujer Santacruz assesses the importance of strategic asset class allocation compared to other sources of returns for a set of Australian managed funds. He specifies three fund return components as: (1) strategic allocation,… Keep Reading
October 23, 2012 - Gold
Does modeling gold price relationships with other variables based on entire distributions differ from that based only on distribution means? In their May 2012 paper entitled “Is Gold Overpriced?”, Lingjie Ma and George Patterson apply a quantile regression model (considering effects across the distribution) to investigate long-run relationships between the price of gold and various economic… Keep Reading
October 22, 2012 - Equity Premium
Which equity markets worldwide offer the best reward-to-risk ratios? In their October 2012 paper entitled “Risk-Adjusted Performances of World Equity Indices”, Yigit Atilgan and Ozgur Demirtas investigate whether 52 developed and emerging market equity indexes compensate investors equally based on reward-to-risk ratios. They consider three reward-to-risk ratios: (1) conventional Sharpe ratio based on monthly return and… Keep Reading