Pension Funds Turn In Vain To Hedge Funds
Hit by a “perfect storm” that combined a decade (2000-2009) in which the S&P 500 lost about 1% a year with a rising tide of pension obligations, public workers’ pension funds across the country increasingly began turning to riskier alternative...
Mispricing Underlies Profitability Premium
It has been well-documented that profitability is positively correlated with stock returns—firms with higher profits earn higher returns. The question that we will ask today about the profitability premium relates to its source: Is it based on risk? Or, is...
Buffett’s Advice Widely Respected, Seldom Followed
If investors were asked, “Who do you think is the greatest investor of our generation?” I’d bet an overwhelming majority would answer, “Warren Buffett.” If they were then asked, “Do you think you should follow his advice?” you might think...
Retirement Is Scary; Plan It Out
Retirement creates many challenges. Unfortunately, while about 10,000 Americans retire daily, the sad truth is that most people seem to spend less time planning for retirement than they do for a vacation. Anxiety regarding our futures is a common ailment,...
Beware The Drag Of Collar Strategies
It’s been well-documented that, in general, investors are risk-averse. This aversion to losses leads many investors to seek “tail protection” strategies. And the most direct way to obtain downside protection is to buy put options. However, purchasing volatility insurance is...
Hedge Funds Choke In Crises
Among the arguments made for investing in hedge funds is that they reduce the tail risks of traditional portfolios. In other words, they are expected to at least avoid the impact of market crises. Unfortunately, the 1998 implosion of Long-Term...
Mispricing Isn’t Going Anywhere
Financial research has uncovered many anomalies (mispricings) that persist even well after they’ve been discovered, the findings are published and their existence becomes widely known. The most well-known anomalies that represent violations of the Fama-French three-factor model (market beta, size...
Watch Out For Potholes
Simon Lack’s first book, “The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to Be True,” chronicles the history of the hedge fund, highlighting many subtle and not-so-subtle ways that risks and returns are biased...
Analysts’ Disappearing Edge
A long-standing anomaly for efficient markets has been what’s called “post-revision return drift” (PRD). Research into stock returns has found that changes in sell-side analyst recommendations for buying and selling stocks predict future long-term returns in the same direction as...
Politics Can Sway Investing
It seems that in the upcoming presidential election, American voters will be faced with choosing between two candidates with the highest unfavorable ratings in history. It’s either that (at least if the parties’ national conventions go as expected), or a...
