Should Investors Hedge Their Equity Portfolios? Maybe Not, According To A New Study

Minimizing loss while pursuing return animates every investment strategy, but behind any and all efforts to actively sidestep red ink lurks a perennial question: Will it work? There are no easy answers for the simple reason that every investor’s risk tolerance, objective, time horizon, and other factors are unique. In search of context, however, there’s an obvious place to start: comparing how various hedging strategies stack up. Campbell Harvey (a professor at Duke University) and several co-authors from the Man Group (one of the world’s biggest hedge fund groups) do some of the legwork by reviewing several equity market hedges…

Does Momentum Explain Most Asset Pricing Anomalies?

Financial researchers have assembled a small library of empirical support for explaining the existence of excess return over a relevant benchmark as the byproduct of one or more asset pricing anomalies. The factor zoo, as it’s derisively called, now ranges from the well-known value and small-cap risk premia to hundreds of lesser-known anomalies. By this reasoning, the simplicity of the capital asset pricing model’s single-beta mapping has given way to a multi-dimensional universe of empirical risk factors a la the arbitrage pricing theory. That implies greater opportunity but also greater potential for trouble since the relationship is weak, at best,…

Is There A Better Way To Build “Optimal” Portfolios?

The suggestion that investment portfolios can be quantitatively optimized became controversial almost as soon as Harry Markowitz launched the modern age of portfolio design in 1952, courtesy of his famous “Portfolio Selection” paper. Not because anyone disputes the goal of engineering a portfolio that maximizes return for a given level of risk. That’s every investor’s goal, even if she doesn’t think in those terms. Rather the debate centers on how portfolio optimization is best accomplished. Markowitz’s original proposition was a relatively simple affair, largely due to the limits of computational resources in the mid-20th century. Professor Markowitz developed a methodology…

Monthly Market Review – September 2019

Highlights The U.S. economy continues to grow, however, it has also shown some signs of a potential slowdown in growth. The stock market continues to rally despite headwinds from an ever-escalating trade war between the U.S. and China. Falling interest rates has the bond market considerably higher.  Meanwhile, the yield curve remains relatively flat after inverting in August. Economic Review The U.S. economy continues to look fairly strong, but has shown some indications of a potential slowdown in growth.  In the second quarter of 2019 GDP grew at an annualized rate of 2.0%, its slowest in five years.  However, over…

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