Studying history to manage expectations about the future comes with a truckload of caveats, but for rare events, such as the current coronavirus crisis, the past is one of few tools for developing perspective. The obvious precedent for the world’s current woes is the Great Influenza Pandemic of 1918-1920, which Continue Reading
How Is Coronavirus Shaping Economic Expectations? A New Survey Offers Initial Results
These are still early days for understanding the coronavirus (COVID-19) that’s threatening our health and roiling the global economy, but the first draft of analysis is starting to roll in. Among the first reviews is a new working paper that assesses how COVID-19 is influencing macroeconomic expectations. The crisis will Continue Reading
Equity Factor Strategies Aren’t Immune To Mean Reversion
Clint Eastwood’s “Dirty Harry” character famously sneered that “a man’s got to know his limitations.” The same can be said of factor returns, which can be slippery beasts, especially in the short run. Factor premia typically look compelling in long-term profiles, but results are subject to volatility and more than Continue Reading
What’s Old Is New For Business Cycle Analysis
The arrow of progress in economic analysis usually rolls forward with time. Yesteryear’s insights give way to new wisdom as dismal scientists discover data sets, develop analytical tools, and devise new models. But sometimes the process works in reverse. To wit, a new paper makes use of a nearly century-old Continue Reading
The Wisdom of Multiple Models
Few “discoveries” in finance and economics stand the test of time, much less so in the realm of forecasting. One of the rare exceptions is the seminal research by Bates and Granger (“The Combination of Forecasts”), which celebrates its 51st anniversary this year. The paper’s central insight: combining forecasts from Continue Reading
Is It Time To Vaccinate Your Portfolio From The Coronavirus?
(Note: This blog was posted at 2:45 pm on January 30, 2020.) The coronavirus death toll rose to 170 and confirmed cases soared past 7,700, posing a potentially serious threat to the global economy. Pursuing an unproven and hastily developed vaccine in hopes of inoculating your portfolio from effects of Continue Reading
Are Mediocre Results For Trend-Following Strategies Due To Rebound?
The popularity of trend-following strategies has surged over the past decade. In the wake of the 2008-2009 financial crisis, a growing number of investors embraced the risk-management attributes of the so-called momentum factor—the tendency of recent returns to persist in the near-term future. (Trend-following and momentum strategies are close cousins; Continue Reading
The Search For True Diversification
Diversification has long been the Holy Grail that animates informed portfolio design. The debate is how to achieve it? The standard prescription: hold a mix of asset classes, perhaps spiced up with strategies that strive to re-engineer the conventional risk-reward relationship inherent in plain-vanilla market betas. On paper this sounds Continue Reading
Is Bond Alpha As Good As It Looks?
The case for indexing equity portfolios has been thoroughly established in the financial literature and, more importantly, in real-world results. The merits of indexing with respect to fixed income investing, by contrast, is more of a gray area. A recent study by AQR finds that bond fund managers aren’t generating Continue Reading
Low Interest Rates Still Look Like The New Normal
The financial crisis that ripped through the global economy in 2008-2009 ended more than a decade ago, but one of its most confounding offspring persists: low (and in some cases negative) interest rates. Some have suggested this phenomenon is largely – if not wholly – due to the Federal Reserve’s Continue Reading