Revised Catastrophe Bonds Worth A Look
Insurance-linked securities (ILS) are a relatively recent financial innovation designed to allow risk to transfer from the insurance industry to the financial markets. Pension funds, banks and sovereign wealth funds are the largest holders of ILS, and hedge funds recently...
Socially Responsible Investing Is A (Minor) Drag
Socially responsible investing, which is designed to address investors’ ethical and financial concerns, has gradually developed to include the consideration of firms’ environmental, social and governance (ESG) performance An interesting question is whether ESG investing has an impact on risk-adjusted...
The Cause Of Myopic Loss Aversion
From 1927 through 2015, there has been a very large difference between the returns to the S&P 500 and the returns to risk-free Treasury bills—about 8.5% on an annual average basis and about 6.7% on an annualized basis. This large...
Looking At Your Portfolio Hurts Returns
Earlier this week, we examined a pair of studies that sought to explore the relationship between the equity premium puzzle and investor behavior, specifically a behavior known as myopic loss aversion (MLA). MLA describes the tendency of investors who are...
Research Highlights Active Mgmt Shortcomings
In many walks of life, trying to discern the lucky from the skilled can be a difficult task. For example, it seems like every time a professional sports draft occurs, debate again flares up over whether the evaluation of college...
Use Caution With Low Vol Strategies
As we have discussed before, one of the major problems for the first formal asset pricing model developed by financial economists, the capital asset pricing model (CAPM), was that it predicts a positive relation between risk and return. But empirical...
Irrelevance Of Dividends
Research has established that dividend policy should be irrelevant to stock returns, yet investors have long demonstrated an irrational preference for them. Mutual fund providers are well-aware of this fact. Earlier this week, we reviewed a pair of studies showing...
Mutual Funds Lace Portfolios With Dividend ‘Juice’
It has long been known that many investors have a preference for cash dividends. From the perspective of classical financial theory, this behavior is an anomaly. The reason is that, in their 1961 paper, “Dividend Policy, Growth, and the Valuation...
Low Vol Benefits Fading
Low-volatility strategies have quickly become the darling of many investors, thanks largely to trauma caused by the bear market that arose from the 2008-2009 financial crisis combined with academic research showing that the low-volatility anomaly exists in equity markets around...
Investors Should Re-Examine Annuity Aversion
Numerous academic studies advocate for the partial-to-full annuitization of financial assets. Yet despite the evidence, a majority of investors remain reluctant to annuitize for both behavioral and financial reasons. The reluctance to purchase annuities has been called the “annuity puzzle.”...
