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Emerging Markets Debt Securities: A Literature Review The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-04-25 Marielle De Jong,Frank J. Fabozzi
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Alternative Risk Premium Fund Analysis The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-04-08 Stephen A. Gorman,Frank J. Fabozzi
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Emerging Market Investing: A Multi-Asset, Granular, and Dynamic Portfolio Approach The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-04-06 Josh Davis,Grace (Tiantian) Qiu,German Ramirez,Helen Guo,Ding Li,Zhihui Yap
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Toward Regime-Aware Risk Forecasts The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-03-31 Kevin Khang
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The Data Dilemma in Alternative Risk Premium: Why Is a Benchmark So Elusive? The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-03-15 Stephen A. Gorman,Frank J. Fabozzi
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On the Benefits of Scale Economies in Asset Management The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-03-11 Shreya Adiraju,Dalia Blass,Samara Cohen,Ananth Madhavan,Salim Ramji
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Performance, Perception, and Manager Selection The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-03-10 Scott D. Stewart
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Maximizing Capital Efficiency in US Defined Benefit Pension Plan Immunizing Portfolio Construction Using Derivatives and a Power Law Relationship The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-03-10 Scott McDermott
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Cost, Performance, and Benchmark Bias of Public Pension Funds in the United States: An Unflattering Portrait The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-03-08 Richard M. Ennis
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Stock-Market Risk Factors and Manager Performance The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-03-05 Peter Mladina,Steven Germani
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Portfolio Decisions within a Generalized Funding Ratio Framework The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-03-02 Martin L. Leibowitz,Stanley Kogelman
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Editor’s Introduction for the 2022 Special Issue on Multi-Asset Strategies The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-02-28 Frank J. Fabozzi
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Drawdown Measures: Are They All the Same? The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-02-26 Olaf Korn,Philipp M. Möller,Christian Schwehm
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Tail Risk Hedging Performance: Measuring What Counts The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-02-24 Linda Chang,Jeremie Holdom,Vineer Bhansali
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Systematic ESG Risk and Passive ESG Investing The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-02-24 Ick Jin
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Workhorse or Trojan Horse? The Alternative Risk Premium Conundrum in Multi-Asset Portfolios The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-02-13 Stephen A. Gorman,Frank J. Fabozzi
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Option-Enhanced Tax-Smart Portfolio Value The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-02-11 Andrew Kalotay
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Multi-Asset Class Factor Premia: A Strategic Asset Allocation Perspective The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-02-09 Stefano Cavaglia,Louis Scott,Kenneth Blay,Scott Hixon
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Using a Life Cycle Model to Design a Target Date Glidepath The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-02-09 Ilia Lanski,Raj Paramaguru,Wesley Phoa,Yung Wang,P. Brett Hammond
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Risk Parity and Beyond—From Asset Allocation to Risk Allocation Decisions The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-02-08 Romain Deguest,Lionel Martellini,Attilio Meucci
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Dual Momentum: Testing the Dual Momentum Strategy and Implications for Lifetime Allocations The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-02-08 Seokkeun Ha,Frank J. Fabozzi
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Net-Zero Investing for Multi-Asset Portfolios Seeking to Satisfy Paris-Aligned Benchmark Requirements with Climate Alpha Signals The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-01-28 Philip Hodges,He Ren,Katharina Schwaiger,Andrew Ang
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The Long and the Short of Risk Parity The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-01-26 Alexandre Rubesam
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Diversification—A Free Starbucks Cup of Coffee? The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-01-12 Mark Anson
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Dual-Horizon Strategic Asset Allocation The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-01-12 Alexander Rudin,Daniel Farley
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Portfolio Risk Mitigation without Bonds The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-01-11 Michael Stamos
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A Novel Approach to Risk Parity: Diversification across Risk Factors and Market Regimes The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-01-08 Chris Kelliher,Avishek Hazrachoudhury,Bill Irving
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There Is No Unique Rational Decision Strategy in Financial Markets The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-01-03 Klaus Schredelseker
Most people will agree that markets are complex systems, but they usually pay just lip service to it. Until now, in financial economics, a mechanics paradigm has prevailed. Taking complexity seriously, some fundamental convictions have to be questioned. For an investor, the relationship between information and performance cannot be linear: a lousy analyst may systematically outperform a highly skilled
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The Covariance Structure between Liquid and Illiquid Assets The Journal of Portfolio Management (IF 1.53) Pub Date : 2022-01-03 Marielle de Jong
The traditional methods of estimating investment risk based on the observed variation of asset prices falter on sparsely traded assets owing to the lack of price quotes. The price variance of illiquid assets such as private equity, loans, or real estate is, if calculable at all, not meaningful. Nor does the observed covariance between illiquid assets indicate a degree of proximity in the price behavior
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Editor’s Introduction for 2022 Special Issue on Factor Investing The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-31 Frank J. Fabozzi
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Toward Tax-Efficient Low-Volatility Investing The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-31 Shaojun Zhang
This article reevaluates low-volatility investing strategies—in particular, their tax efficiency. Low-volatility strategies intend to help investors achieve market-like equity returns, but with less risk than the broader market. Among the low-volatility strategies, those with lower volatility carry lower returns but incur higher turnover and tax burdens. Explicit tax management can greatly improve
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Factor Construction Zoo: Are Factor Exposures Created Equal? The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-31 Shaojun Zhang
The answer is no. Factor investing provides investors with a low-cost avenue to participate in stock selection. Investors earn excess returns for taking on factor risk, which is often measured by factor exposure. However, the relation between the return and factor exposure is nonlinear. Large-scale simulation shows that similar target factor exposures can be engineered using various portfolio construction
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Active versus Passive: Old Wine in New Wine Skins The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-30 Eric Sorensen,Nicholas Alonso,Sebastian Lancetti,Daniel Belanger
Creators of the 1970s’ capital asset pricing model could not have imagined how their descriptive theory of risk and return would come to dominate as a normative benchmark and reach extreme cycles of concentration. The cap-weighted index is central to the topic of active versus passive equity management. The authors study the 30-year history of S&P concentration cycles (when, on a few occasions, a handful
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Quantifying Long-Term Market Impact The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-29 Campbell R. Harvey,Anthony Ledford,Emidio Sciulli,Philipp Ustinov,Stefan Zohren
Impact costs occur when large buy or sell orders move market prices. The measurement of these costs is crucial for the evaluation of potential trading strategies and the successful execution of systematic investment strategies. However, common approaches suffer from a type of myopia: impact is only measured for the current transaction. In many cases, orders are correlated, and the impact of the first
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Public and Private Equity Returns: Different or Same? The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-24 Alexander Rudin,Daniel Farley
In this article, the authors propose a novel, Shiller-inspired, regression-style model that links observed private and public equity returns. The model illuminates why, over the short term, private returns are superior to public ones, whereas over the long term, public and private returns are largely interchangeable after proper adjustments are made, resolving a long-standing conundrum. Results are
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Intangibles: The Missing Ingredient in Book Value The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-23 Feifei Li
The author closely examines the impact of adding intangibles to traditional book equity as a more meaningful value measure. This intangibles-adjusted value metric subsumes the traditional book-to-price metric in explaining cross-sectional equity returns and improves value factor performance across subsample periods and geographic regions. The author finds that knowledge capital (capitalized research
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History, Shocks, and Drifts: A New Approach to Portfolio Formation The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-17 Mark Kritzman,David Turkington
Investors intuitively view future possibilities as a combination of historical outcomes, shocks that occur suddenly, and drifts that unfold gradually over several years. The authors show how to build portfolios based on such a view of the future. Their key innovation is to create a mixed-frequency return sample that properly balances short-term and long-term returns and to form portfolios by considering
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Gains from Markowitz Optimization: Evidence from Reoptimization of Mutual Fund Holdings The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-16 Tony Elavia,S. P. Kothari,Xu Li,Haifeng You
Prior studies have challenged the practical usefulness of Markowitz portfolio optimization in improving the return–risk trade-off in portfolio management. The authors approach this question from a unique angle by examining whether one can improve the performance of a large sample of actual mutual fund portfolios by reoptimizing the holdings using simple mean–variance optimization methods. The analyses
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Predicting Performance Using Consumer Big Data The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-16 Kenneth Froot,Namho Kang,Gideon Ozik,Ronnie Sadka
To predict firms’ fundamentals, the authors construct three proxies for real-time corporate sales from fully distinct information sources: in-store foot traffic (IN-STORE), web traffic to companies’ websites (WEB), and consumers’ interest level in corporate brands and products (BRAND). The authors demonstrate that trading using these proxies, estimated for a sample of 330 firms over 2009–2020, results
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Changes in Ownership Breadth and Capital Market Anomalies The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-11 Yangru Wu,Weike Xu
The authors investigate how the interaction between entries and exits of informed institutional investors and market anomaly signals affects strategy performance. The long legs of anomalies earn more positive alphas following entries, whereas the short legs earn more negative alphas following exits. The enhanced anomaly-based strategies of buying stocks in the long legs of anomalies with entries and
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The Gerber Statistic: A Robust Co-Movement Measure for Portfolio Optimization The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-10 Sander Gerber,Harry M. Markowitz,Philip A. Ernst,Yinsen Miao,Babak Javid,Paul Sargen
The purpose of this article is to introduce the Gerber statistic, a robust co-movement measure for covariance matrix estimation for the purpose of portfolio construction. The Gerber statistic extends Kendall’s Tau by counting the proportion of simultaneous co-movements in series when their amplitudes exceed data-dependent thresholds. Because the statistic is not affected by extremely large or extremely
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The Performance Life Cycle of Hedge Funds: Can Investors Achieve Lasting Performance? The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-09 Chao Gao,Timothy D. Haight,Chengdong Yin,Chengsi Zhang
We examine the performance life cycle of hedge funds. Performance declines with age are pervasive, not just for the average fund, but also for past winners and for funds with characteristics that predict cross-sectional returns. Fund growth and decreasing performance incentives appear to contribute to performance declines with age. Performance declines in early years coincide with a sharp drop in strategy
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Aggregate Alpha in the Hedge Fund Industry: A Further Look at Best Ideas The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-09 F. Amir-Ghassemi,A. Papanicolaou,M. Perlow
This article is an examination of the stock-picking behavior of nearly 1,500 hedge funds using regulatory mandated position-level data from the SEC (Form 13F). Using data from June 1999 to December 2018, abnormal excess alpha is found on both a gross and dollar basis. Breaking the 20-year sample into two periods, the authors note a significant decline in gross alpha after the 2008 global financial
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The Better-of-Two Strategy for Active versus Passive Management: The Option Value of Active through Time The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-12-08 Steve Fox,P. Brett Hammond
Instead of forcing a choice between active and passive portfolios, we create a better-of-two option to (1) calculate active management’s value and (2) find the optimal weights for an active-plus-passive portfolio that dynamically replicates this option through time. To replicate the option at a 10-year horizon, the strategy initially allocates roughly 60% to the active asset. Using historical returns
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Factor Investing in Sovereign Bond Markets: Deep Sample Evidence The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-11-19 Guido Baltussen,Martin Martens,Olaf Penninga
The authors examine government bond factor premiums in a deep global sample from 1800 to 2020, spanning the major markets and maturities. Bond factors (value, momentum, low-risk) offer attractive premiums that do not decay across samples, are persistent over time, and are consistent across various market and macroeconomic scenarios. The factor premiums are diversified to each other, as well as to bond
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Why Are High Exposures to Factor Betas Unlikely to Deliver Anticipated Returns? The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-11-16 Chris Brightman,Forrest Henslee,Vitali Kalesnik,Feifei Li,Juhani Linnainmaa
By choosing investment strategies that intentionally create exposure to factor betas, investors may be obtaining uncompensated risks. The authors show, across a wide variety of factors and geographical markets, that factors constructed from fundamental characteristics have earned high returns, whereas those constructed from statistical betas have earned returns close to zero. When designing factor-based
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Macro Factor Investing with Style The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-11-13 Alexander Swade,Harald Lohre,Mark Shackleton,Sandra Nolte,Scott Hixon,Jay Raol
Investors face similar macroeconomic risks and opportunities regardless of their individual investment preferences. To best navigate growth and inflation concerns, the authors propose building macro factor–mimicking portfolios diversified across asset classes and style factors. They focus on the macro factors growth, inflation, and defensive. Their approach allows for shaping the macroeconomic risk
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The Future of Factor Investing The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-11-12 Dimitris Melas
In this article, the author discusses current structural research and investment trends that are shaping the future of factor investing. Specifically, the author focuses on three emerging trends: the ongoing evolution of traditional factor models and strategies, recent innovation in data sources and modeling techniques, and the potential disruption from integrating factor strategies into the asset
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Investing in US Core Fixed Income with Macro and Style Factors The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-11-12 Eugene Pauksta,Karishma Kaul,Tom Parker,Scott Radell,Andrew Ang
The authors harvest factors—broad and persistent sources of returns—in US core fixed income in three ways. First, they take strategic over- and underweight positions in certain macro factors. Although strategic overweights to rates, or duration, and credit factors have historically resulted in outperforming fixed-income benchmarks, the authors find the long Treasury sector to be the most efficient
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Socially Responsible Investing and Factor Investing, Is There an Opportunity Cost? The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-11-12 Li Cai,Ricky Cooper,Di He
This article examines factor investing in the presence of an environment, social, and governance (ESG) screening overlay. The authors find that virtually no degradation in performance or turnover costs occur when using a negative-based ESG screen (i.e., removing only companies that have an actively bad ESG score). However, there are severe risk-induced performance issues and high transactions costs
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How Valuable Are Target Price Forecasts to Factor Investing? The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-11-03 Hamza Bahaji
The informativeness of financial analysts’ stock recommendations to investors has become the subject of much scrutiny and debate. This article investigates the investment value of target price (TP) forecasts under the specific angle of factor investing. It provides directions to quantitative portfolio managers for the integration of signals conveyed by those forecasts in systematic and rule-based investment
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Price Informativeness with Equity Market Factors The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-10-30 Roger Clarke,Harindra de Silva,Steven Thorley
Price informativeness measures how and when information is aggregated into asset prices. The authors study the price informativeness of realized earnings growth for US stocks, with a focus on exposures to factors that have historically outperformed the market index. Their study includes the largest 1,000 stocks from 1975 to 2019 and approximately 180,000 individual corporate net income observations
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How Much Information Is Required to Time the Market? The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-10-13 Rongju Zhang,Henry Wong
In this article, the authors present an analytical explanation for why it can be difficult to devise a successful market timing strategy. The authors derive formulas to estimate the minimum required information coefficient for a timing strategy to outperform a buy-and-hold market benchmark, both with and without an alpha target. They show that markets with high Sharpe ratios and those that have low
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Measuring and Managing the Opportunity Cost of Downside Risk Protection The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-10-13 Nicole Beevers,Hannes Du Plessis,Lionel Martellini,Vincent Milhau
Portfolio insurance targets the elimination of losses in excess of a predefined threshold while allowing for access to the upside potential of an underlying risky asset. This article studies the implications of the choice of the underlying asset on the frequency and magnitude of floor breaches and on the loss of performance associated with the protection against downside risk; it considers in particular
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A Tale of Two Tails: Mortality, Size, Volatility, and EPU The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-10-13 Maggie Copeland,Thomas Copeland,Zhitong Lai
The firm’s equity can be valued by focusing on two tails that involve optionality. Equity shareholders have two call options on the firm’s value: an upside potential benefit call and a downside risk protection call. An optimal capital structure can be derived from optimizing these two call options. We navigate different size and volatility portfolios by examining their mortality rate for the period
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The Efficient Frontier: A Note on the Curious Difference between Variance and Standard Deviation The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-10-12 Richard Roll
The Markowitz frontier of optimal portfolios is valid in both mean–variance space and in mean–standard deviation space. There are, however, some curious differences because lines in one space become curves in the other. This article explores and explains the curiosity. Key Findings ▪ The capital allocation line is a curve in mean–variance space. ▪ There is a line in mean–variance space that connects
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Should Equity Factors Be Betting on Industries? The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-10-07 Krishna Vyas,Michael van Baren
Asset managers are increasingly incorporating equity factors that deviate from traditional academic definitions in their stock selection process. The authors show that these factors frequently exhibit strong industry biases, making it crucial to understand the interaction between factor exposure and traditional industry exposure. Industry exposure plays a major role in the risk profile of a portfolio
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Latent Factors in Equity Returns: How Many Are There and What Are They? The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-10-06 Ross French
The optimal method for determining the number of latent factors in a dataset is an unresolved problem in explanatory factor analysis. This article uses several of the most commonly cited methods to determine the number of relevant factors in developed equity markets, finding that there are typically between 10 and 20. The results of these tests are evaluated against the optimal number of factors for
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Fund Success and Assurance Frontiers The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-10-02 Martin L. Leibowitz,Stanley Kogelman
Investment fund investment strategies and asset allocations typically are based on a multiplicity of complex (possibly competing) goals that often are incorporated in a simple return target. The challenge is to develop a portfolio whose expected return at least equals the target but has a volatility less than a disaster-avoidance risk limit. However, such a goal-matching return only provides a 50/50
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Volatility Timing under Low-Volatility Strategy The Journal of Portfolio Management (IF 1.53) Pub Date : 2021-10-01 Poh Ling Neo,Chyng Wen Tee
The authors show that the slope of the volatility decile portfolio’s return profile contains valuable information that can be used to time volatility under different market conditions in the United States. During good (bad) market conditions, the high- (low-) volatility portfolio produces the highest return. The authors proceed to devise a volatility timing strategy based on statistical tests on the