Download or read book Essays on Low risk Investing written by Stephen W. Bianchi and published by . This book was released on 2014 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt: Low-risk investing refers to a diverse collection of investment strategies that emphasize low-beta, low-volatility, low idiosyncratic risk, downside protection, or risk parity. Since the 2008 financial crisis, there has been heightened interest in low-risk investing and especially in investment strategies that apply leverage to low-risk portfolios in order to enhance expected returns. In chapter 1, we examine the well-documented low-beta anomaly. We show that despite the fact that low-beta portfolios had lower volatility than the market portfolio, some low-beta portfolios had higher realized Sharpe ratios (over a 22-year horizon) than the market portfolio. This is can not happen in an efficient market, where long-run return is expected to be earned as a reward for bearing risk, if risk is equated with volatility. We expand the notion of risk to include higher moments of the return distribution and show that excess kurtosis can make low-beta stocks and portfolios riskier than higher beta stocks and portfolios. In chapter 2, we show that the cumulative return to a levered strategy is determined by five elements that fit together in a simple, useful formula. A previously undocumented element is the covariance between leverage and excess return to the fully invested source portfolio underlying the strategy. In an empirical study of volatility-targeting strategies over the 84-year period 1929-2012, this covariance accounted for a reduction in return that substantially diminished the Sharpe ratio in all cases. In chapter 3, we gauge the return-generating potential of four investment strategies: value weighted, 60/40 fixed mix, unlevered and levered risk parity. We have three main findings. First, even over periods lasting decades, the start and end dates of a backtest can have a material effect on results; second, transaction costs can reverse ranking, especially when leverage is employed; third, a statistically significant return premium does not guarantee outperformance over reasonable investment horizons.

Download or read book Risk Less and Prosper written by Zvi Bodie and published by John Wiley & Sons. This book was released on 2011-12-27 with total page 227 pages. Available in PDF, EPUB and Kindle. Book excerpt: A practical guide to getting personal investing right Somewhere along the way, something has gone very wrong with the way individuals save and invest. Too often, households are drawn in by promotional suggestions masquerading as impartial investment advice. Consumers get saddled with more risk than they realize. Authors Zvi Bodie and Rachelle Taqqu understand the dilemma that today's investors face, and with Risk Less and Prosper they will help you find your financial footing. Written in an accessible style, this practical guide skillfully explains why personal investing is all about you—your goals, your values and your career path. It shows how to understand investment risk and choose the particular blend of risk and safety that is right for you. And it lays out several simple yet powerful ways for small investors to cast a reliable safety net to achieve their financial goals and truly prosper. Coauthors Bodie and Taqqu challenge the myth that all investments require risk, then highlight some important risks that families often disregard when deciding where to put their money. Later, they connect the dots between investment and investor, showing us all how to grasp our own investment risk profiles and how we may use these insights to make more fitting investment choices. Outlines a straightforward way to invest by aligning your investments with your goals and the risk levels you can bear Provides basic investment abc's for readers who are otherwise literate Lays out a simple, actionable plan for achieving your goals Explains the role of risk-free assets and investment insurance in assuring that you reach your most essential goals Contrary to popular belief, investing doesn't have to be complicated. You can build wealth without taking great risks. Risk Less and Prosper will show you how to make investment decisions that will make your financial life less stressful and more profitable.

Download or read book High Returns from Low Risk written by Pim van Vliet and published by John Wiley & Sons. This book was released on 2017-01-17 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt: Believing "high-risk equals high-reward" is holding your portfolio hostage High Returns from Low Risk proves that low-volatility, low-risk portfolios beat high-volatility portfolios hands down, and shows you how to take advantage of this paradox to dramatically improve your returns. Investors traditionally view low-risk stocks as safe but unprofitable, but this old canard is based on a flawed premise; it fails to see beyond the monthly horizon, and ignores compounding returns. This book updates the thinking and brings reality to modelling to show how low-risk stocks actually outperform high-risk stocks by an order of magnitude. Easy to read and easy to implement, the plan presented here will help you construct a portfolio that delivers higher returns per unit of risk, and explains how to achieve excellent investment results over the long term. Do you still believe that investors are rewarded for bearing risk, and that the higher the risk, the greater the reward? That old axiom is holding you back, and it is time to start seeing the whole picture. This book shows you, through deep historical simulation, how to reap the rewards of smarter investing. Learn how and why low-risk, low-volatility stocks beat the market Discover the formula that outperforms Greenblatt's Construct your own low-risk portfolio Select the right ETF or low-risk fund to manage your money Great returns and lower risk sound like a winning combination — what happens once everyone is doing it? The beauty of the low-risk strategy is that it continues to work even after the paradox is widely known; long-term investment success is possible for anyone who can shake off the entrenched wisdom and go low-risk. High Returns from Low Risk provides the proof, model and strategy to reign in your exposure while raking in the profit.

Download or read book Strong Towns written by Charles L. Marohn, Jr. and published by John Wiley & Sons. This book was released on 2019-10-01 with total page 262 pages. Available in PDF, EPUB and Kindle. Book excerpt: A new way forward for sustainable quality of life in cities of all sizes Strong Towns: A Bottom-Up Revolution to Build American Prosperity is a book of forward-thinking ideas that breaks with modern wisdom to present a new vision of urban development in the United States. Presenting the foundational ideas of the Strong Towns movement he co-founded, Charles Marohn explains why cities of all sizes continue to struggle to meet their basic needs, and reveals the new paradigm that can solve this longstanding problem. Inside, you’ll learn why inducing growth and development has been the conventional response to urban financial struggles—and why it just doesn’t work. New development and high-risk investing don’t generate enough wealth to support itself, and cities continue to struggle. Read this book to find out how cities large and small can focus on bottom-up investments to minimize risk and maximize their ability to strengthen the community financially and improve citizens’ quality of life. Develop in-depth knowledge of the underlying logic behind the “traditional” search for never-ending urban growth Learn practical solutions for ameliorating financial struggles through low-risk investment and a grassroots focus Gain insights and tools that can stop the vicious cycle of budget shortfalls and unexpected downturns Become a part of the Strong Towns revolution by shifting the focus away from top-down growth toward rebuilding American prosperity Strong Towns acknowledges that there is a problem with the American approach to growth and shows community leaders a new way forward. The Strong Towns response is a revolution in how we assemble the places we live.

Download or read book The Equity Risk Premium written by William N. Goetzmann and published by Oxford University Press. This book was released on 2006-11-16 with total page 568 pages. Available in PDF, EPUB and Kindle. Book excerpt: What is the return to investing in the stock market? Can we predict future stock market returns? How have equities performed over the last two centuries? The authors in this volume are among the leading researchers in the study of these questions. This book draws upon their research on the stock market over the past two dozen years. It contains their major research articles on the equity risk premium and new contributions on measuring, forecasting, and timing stock market returns, together with new interpretive essays that explore critical issues and new research on the topic of stock market investing. This book is aimed at all readers interested in understanding the empirical basis for the equity risk premium. Through the analysis and interpretation of two scholars whose research contributions have been key factors in the modern debate over stock market perfomance, this volume engages the reader in many of the key issues of importance to investors. How large is the premium? Is history a reliable guide to predict future equity returns? Does the equity and cash flows of the market? Are global equity markets different from those in the United States? Do emerging markets offer higher or lower equity risk premia? The authors use the historical performance of the world's stock markets to address these issues.

Download or read book Essays on Empirical Asset Pricing written by Niels Joachim Christfort Gormsen and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Art of Low Risk Investing written by Michael G. Zahorchak and published by . This book was released on 1972 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Risk Based and Factor Investing written by Emmanuel Jurczenko and published by Elsevier. This book was released on 2015-11-24 with total page 488 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a compilation of recent articles written by leading academics and practitioners in the area of risk-based and factor investing (RBFI). The articles are intended to introduce readers to some of the latest, cutting edge research encountered by academics and professionals dealing with RBFI solutions. Together the authors detail both alternative non-return based portfolio construction techniques and investing style risk premia strategies. Each chapter deals with new methods of building strategic and tactical risk-based portfolios, constructing and combining systematic factor strategies and assessing the related rules-based investment performances. This book can assist portfolio managers, asset owners, consultants, academics and students who wish to further their understanding of the science and art of risk-based and factor investing. Contains up-to-date research from the areas of RBFI Features contributions from leading academics and practitioners in this field Features discussions of new methods of building strategic and tactical risk-based portfolios for practitioners, academics and students

Download or read book Three Essays in International Finance written by Byong-Ju Lee and published by Stanford University. This book was released on 2011 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays on international finance. The first essay is "Exchange rates and Fundamentals". A new open interest rate parity condition that takes account of economic fundamentals is developed from stochastic discount factors (SDFs) of two countries. Through this parity condition, business cycles or fundamentals are linked to exchange rates. Key empirical findings from this parity condition are as follows. First, this model beats the random walk hypothesis: economic fundamentals explain exchange rate movements for high interest rate currencies. Exchange rates of low interest rate currencies act like a random walk because they are less correlated with fundamentals owing to their low risk. For example, U.S. business cycles explain the direction of changes in exchange rates against the dollar. The same thing is true for Japan. Second, this model resolves the forward premium puzzle: the forward premium puzzle is not a general characteristic as regarded in previous studies. It happens when the risk awareness of investors is low, during economic expansions and for low risk currencies. The second essay is "Carry Trade and Global Financial Instability". Carry trade, an opportunistic investment strategy that takes advantage of interest rate differential across countries, is identified the cause of the large-scale depreciations of peripheral currencies in the later half of 2008. A simultaneous equations model, which is derived from a conceptual partial equilibrium model for a local foreign exchange market, is estimated from a cross-sectional sample. The results suggest that the larger appreciation of the yen than the dollar was brought about by a lack of the local supply of the yen rather than a more severe crunch of yen credits. The third essay is "The Economic Origin of Letters of Credit". This essay discusses the economic origin of letters of credit, an instrument widely used in international trade. A game theoretical analysis shows that letters of credit improve efficiency in trade settlements, increasing returns in trade. A few notable facts on letters of credit are discussed. First, the new institution is adopted by merchant banks to maximize their profits and in the process, an improvement in efficiency of international transactions is obtained. Second, the organization established by the legacy institution, bills of exchange, played a critical role in adopting the new institution. Third, the legal enforcement is not essential in this economic institution. Finally, two drivers are identified that improve efficiency of transactions: concentration and projection.

Download or read book Essays on Portfolio Choice and Risk Management written by Yi-Chin Hsin and published by . This book was released on 2016 with total page 87 pages. Available in PDF, EPUB and Kindle. Book excerpt: Globalization increases the access to financial markets and provides expanding opportunities for investors to diversify internationally. As suggested by the Modern Portfolio Theory (Markowiz, 1952), rational investors should use one of the following two strategies to achieve portfolio diversification: (1) Investing in asset classes thought to have low correlations or (2) increasing the sizes of their portfolios in multiple markets. In the early 1970s, diversification was referred to as the “free lunch” in investment. However, French and Poterba (1991) show that investors still tend to hold a disproportionate part of domestic equities in their portfolios. This phenomenon is called “the equity home bias,” which is still puzzling in the international finance literature. These essays investigate what drives individuals to hold inefficient portfolios and forgo the benefits of international diversification. The first chapter of this study explains the equity home bias among international portfolios by analyzing the relationship between the sizes of portfolio required and the investor’s perception about risk. A flexible three-parameter distribution developed by Hueng and Yau (2006) to model the measures of risk for stock returns is extended here. Conclusions reveal that there is a trade-off between the desirable reduction of variance and the undesirable increase of negative skewness of diversifying international portfolios. This trade-off relationship may give an explanation to the equity home bias phenomenon in reality. The second chapter further examines the same question from the correlation perspective. Through numerical analysis, this chapter presents the evolution of U.S. equity home bias in the context of dynamic correlations between developed and emerging markets. The results imply that the persistent high correlations between the developed European and North American markets induced a high U.S. home bias; while on the other hand, the developed Pacific Asian and emerging markets have been relatively less correlated with that of the North American market and has led to a lower U.S. home bias. As future correlations are steadily increasing, investors may seek newly open markets for diversification benefits in the present. Yet over the long run, the benefits of international diversification can be very few. The home bias in the future will be rationalized by the equilibrium correlations between international markets. The third chapter uses micro data to analyze the portfolio choices in risky assets over the working-age of the single individual and the retired segments that are exposed to health and medical expense risk. Single retirees respond to changes in medical expenses by altering their portfolio toward risky assets, while no evidence is found in the changes of single working people’s portfolios. This result is in contrast to theoretical prediction, which assumes that the elders tend to hold riskless assets.

Download or read book Essays in Behavioral Finance written by Chi Liao and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays on the Performance of Investment Management Companies written by Srinidhi Kanuri and published by . This book was released on 2015 with total page 99 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the first essay, we evaluate the performance of commodity mutual funds. The use of commodities to hedge inflation risk and diversify portfolios is generally considered to be an important consideration for portfolio management. Direct investment in commodities or commodity derivatives requires that investors have significant assets and/or expertise in these commodities or their respective derivatives markets. As an alternative to direct investment, investors in recent years have increasingly resorted to the use of commodity based mutual funds. At issue is the question of whether or not these funds are delivering the benefits investors expect. In this paper we evaluate the performance, persistence, market timing and selectivity of four categories of mutual funds whose returns are based on commodity prices over the time period from each fund's inception through December, 2012. Our results indicate that these funds have not been able to create positive alphas for their investors; have negative or insignificant performance persistence; and have no market timing ability. Some of the categories of funds, however do exhibit some selectivity. We did find that when these commodity based funds' performance was evaluated during specific time periods of market downturns (e.g., the 2000 stock market downturn and the 2007 financial crisis), their performance was significantly positive which indicates that these funds provide a good hedge during bear markets/financial crises. The second essay evaluates the performance and diversification benefits of international ETFs for U.S. investors during and after the recent financial crisis. Our results show that U.S. ETFs outperform all categories of international ETFs for the period of our study (January 2008 - June 2013); they have higher average monthly returns, lower risk (standard deviation of returns), higher risk-adjusted performance (Sharpe, Sortino, and Treynor ratios) and the highest cumulative returns over the entire period. When we form equally weighted portfolios of each ETF category and compute their risk-adjusted performance, we again find that U.S. ETF portfolios had the best performance for the entire period. We also find that U.S. ETFs have the lowest tracking error during the entire period. Most of these ETFs passively track the benchmark and do not manage for positive alpha. Previous research has questioned the diversification benefits of international investing during times of financial distress. We find that international ETFs are highly dependent on major U.S. indices, therefore, they offer limited diversification benefits for U.S. investors. "In business, I look for economic castles protected by unbreachable 'moats'." Warren Buffett The third essay evaluates the performance of Wide Moat stocks. Companies that have sustainable competitive advantages should be able to create a barrier (moat) to prevent or lessen competition from other firms. The wider the moat the greater the barrier and the more secure the company's profitability. Using the Morningstar classification of "Wide Moat" stocks, we construct annually rebalanced equal- and value-weighted portfolios to analyze their performance in order to determine if they deliver superior performance relative to standard benchmark portfolios. The period for our analysis extends from June 2002 through May 2014. We find that the "Wide Moat" portfolios outperform both the S & P 500 and Russell 3000 indices generating higher average monthly and annualized returns, Sharpe Ratio, Sortino Ratio, Treynor Ratio, Omega Ratio, Upside Potential Ratio, M2, M2 Alpha and cumulative returns. When we compute alpha using Carhart four-factor and Fama-French five-factor models, we find that "Wide Moat" portfolios had significantly positive risk-adjusted alphas with both the models. "Wide Moat" portfolios also lost less value during the 2007-2009 financial crisis compared to both S & P 500 and Russell 3000. In conclusion, we find that "Wide Moat" stocks have created significant value for their investors over the course of our study.

Download or read book Factor Investing written by Emmanuel Jurczenko and published by Elsevier. This book was released on 2017-10-17 with total page 482 pages. Available in PDF, EPUB and Kindle. Book excerpt: This new edited volume consists of a collection of original articles written by leading industry experts in the area of factor investing.The chapters introduce readers to some of the latest research developments in the area of equity and alternative investment strategies.Each chapter deals with new methods for constructing and harvesting traditional and alternative risk premia, building strategic and tactical multifactor portfolios, and assessing related systematic investment performances. This volume will be of help to portfolio managers, asset owners and consultants, as well as academics and students who want to improve their knowledge and understanding of systematic risk factor investing. A practical scope An extensive coverage and up-to-date researcch contributions Covers the topic of factor investing strategies which are increasingly popular amongst practitioners

Download or read book Essays on Asset Pricing and Portfolio Optimization written by Christian Koeppel and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: WThis doctoral thesis focuses on the effects of investor sentiment on asset pricing and the challenges of portfolio optimization under parameter uncertainty. The first essay "Sentiment risk premia in the cross-section of global equity" applies a recently developed sentiment proxy to the construction of a new risk factor and provides a comprehensive understanding of its role in sentiment-augmented asset pricing models for international equity indices. We empirically demonstrate the existence of a statistically significant and economically relevant sentiment premium. Differentiating between developed and emerging markets we reveal different patterns of return reversals / persistence. Our results contribute to the explanation of global cross-sectional average excess returns, demonstrating superiority in terms of predictive power when compared to competing definitions of sentiment. The second essay "Does social media sentiment matter in the pricing of U.S. stocks?" finds that the inclusion of micro-grounded, social media-based sentiment significantly improves the performance of the five-factor model from Fama and French (2015, 2017). This holds for different industry and style portfolios such as size, value, profitability, and investment. Applying a robust GMM estimator, the sentiment risk premium provides the missing component in the behavioral asset pricing theory of Shefrin and Belotti (2008) and (partially) resolves the pricing puzzles of small extreme growth, small extreme investment stocks and small stocks that invest heavily despite low profitability. The third essay "Diversifying estimation errors: An efficient averaging rule for portfolio optimization" proposes a combination of established minimum-variance strategies to minimize the expected out-of-sample variance. The proposed averaging rule overcomes the strategy selection problem and diversifies estimation errors of the strategies included in our rule. Extensive simulations show that the contributions of estimation errors to the out-of-sample variances are uncorrelated between the considered strategies. We therefore conclude that averaging over multiple strategies offers sizable diversification benefits.

Download or read book Essays on Retirement Plans and Fund Commonalities Within Mutual Fund Families written by Youngkyun Park and published by . This book was released on 2008 with total page 160 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies underfunding in defined benefit (DB) pension plans and firms' contribution behavior, 401(k) plan participant investments in lifecycle funds under plan sponsors' initiative, and fund commonalities within mutual fund families. Responding to the recent decline in DB pension funding, firms have increased pension contributions to their underfunded plans. In the first essay I empirically examine firms' contribution behavior to underfunded DB plans and funding choice for pension contributions. I find that firms reveal different sensitivities of pension contributions to underfunding across aggregate funding levels. Furthermore, at a lower funding level firms have the greater sensitivity of pension contributions to underfunding and significantly utilize the tax deductibility of pension contributions. As for a funding choice to fund pension deficits, firms use debt financing at a low funding level, but utilize internal funding by decreasing capital expenditures at a lower funding level. Firms that use the debt financing are likely to have investment-grade credit ratings or high debt leverage, while firms that use the internal funding are likely to be high-levered ones. Recently lifecycle funds have rapidly grown in self-directed retirement plans. Despite the increasing popularity among plan sponsors and participants, there are few empirical studies on lifecycle funds. In the second essay, I examine the recent lifecycle fund adoption behavior of 401(k) plan participants from 2004 to 2006. I find that the likelihood of participants changing an investment strategy to adopt lifecycle funds is not significantly affected by participant demographic characteristics, but by participant account and plan design features. This study extends our understanding of 401(k) plan participants' investment behavior by finding (1) that the substitution of lifecycle funds for balanced funds, as well as the designation of lifecycle funds as a plan default, strongly affect participants' investments in lifecycle funds and (2) that balanced fund holdings of participants are negatively associated with their lifecycle fund investments. Mutual funds account for a significant portion of household financial assets and retirement assets. An understanding of characteristics of mutual funds is crucial to fund investors--especially those whose retirement nest eggs are in mutual funds. In the final essay, I examine the impacts of fund commonalities within mutual fund families on fund characteristics in terms of return residual correlations and fund operating expenses. As fund commonalities within a fund family, I focus on common stock holdings and common management of funds. I find that common stock holdings and an existence of a common manager of funds are positively related to return residual correlations, but negatively related to fund operating expenses. This finding suggests that when investors select low-cost equity funds within a family, they should be aware that there exists an investment risk that the fund commonalities that lower fund operating expenses may additionally increase return correlations of the funds.

Download or read book Two Essays on Investor Overconfidence and Asset Prices written by Biljana Nikolic and published by . This book was released on 2012 with total page 121 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contains two essays about the impact of investor overconfidence on asset prices. The first essay examines the role of investor overconfidence in explaining the momentum effect. Using a comprehensive sample of U.S. equity mutual funds, I develop two new measures of investor overconfidence based on the characteristics and trading patterns of the fund managers. I find that stocks held by more overconfident managers experience greater momentum profits and stronger return reversals than stocks held by less overconfident managers. The difference in momentum profits between stocks held by more- and less-overconfident managers is not a compensation for risk, nor is it attributable to stock characteristics that influence momentum. My results provide direct support for the argument that stock return momentum is caused by investor overconfidence and biased self-attribution. In the second essay I investigate the impact of investor overconfidence on firm value and cost of capital. Consistent with theoretical predictions, I show that firms held by more overconfident investors exhibit significantly higher market-to-book ratios and significantly lower implied cost of capital. Firms with more overconfident investors experience lower subsequent stock returns, consistent with prices slowly moving back to fundamental values. Moreover, I find that firms with more overconfident investors issue more equity and make more investments, consistent with corporate managers exploiting market misvaluation in making financing and investment decisions.

Download or read book Two Essays in Banking and Finance written by Yuna Heo and published by . This book was released on 2015 with total page 96 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation includes two essays. The first essay investigates whether money illusion misleads investors in the stock market. To the extent that anomalies reflect mispricing, I examine whether money illusion plays a role in the anomaly-based strategies. I find that, following high inflation, anomalies are stronger and the returns on the short-leg portfolios are lower. These findings indicate investors are overly optimistic on the past performance of stocks and overestimate the upside potential of stock returns following high inflation periods. I extend the effect of money illusion by examining sentiment and other commonly used measure for predicting stock returns. I find that money illusion-driven mispricing remains largely unchanged after controlling for many additional variables. These results suggest that money illusion provides a complementary power for cross-sectional stock returns beyond commonly used variables. In summary, this essay contributes to the literatures on money illusion and mispricing by providing evidence that money illusion can lead to mispricing in the stock market. The second essay identifies a new risk factor for bank stock returns. First, I document that standard factor models do not explain bank stock returns well. I investigate the linkage between Loan Loss Provision (LLP) and bank stock returns. I find that low-LLP bank stocks have significantly higher risk-adjusted returns than medium- and high-LLP bank stocks. These findings indicates that low-LLP banks are more likely distressed when economic conditions are bad, as a result, investors require higher returns on low-LLP bank stocks. Most importantly, the new factor model including the LLP return factor adds a new dimension of explanatory power for bank stock returns, reducing the magnitude of alphas mostly to insignificance. Combined with its economic intuition, this essay suggests that loan loss provisions play an important role in evaluating bank stock returns.