Performance Analysis - Articles & White Papers

In this note, we outline a framework for estimating expected returns on equities, government bonds, and corporate bonds. We combine estimates of expected returns across asset classes in developed markets to obtain the expected return on a multi-asset portfolio that approximates the benchmark index of the Government Pension…

Which assets perform best when rates are rising and inflation is high? And what happens if rates are still rising but inflation is already falling? And what’s the impact of the business cycle? These are the questions that everyone is currently trying to answer.

This article analyzes how all the factors we use in our Multi-Factor Regression Model performed during various Market Cycles (in sample), including the Bull/ Bear market, the High/Low inflation, and the Rising/Falling interest rates. Further, we also examine the performance of a Balanced Portfolio ETF–AOR, over the past 100…

The CAPE® Index uses a variation of the CAPE® ratio to identify the most-undervalued sectors of the S&P 500 Index. This distinct approach to large-cap-equity sector rotation has resulted in varying exposure among traditional growth and value sectors. Historically, when sectors are included in the CAPE® Index, they tend…

In FY 2022, public pension plans experienced negative asset returns, and some say it could have been even worse without alternative investments. But the real question is have alternatives (private equity, hedge funds, real estate, and commodities) helped or hurt over the long term? The results suggest that, from 2001-2022,…

Using the full text of 200 million pages of 13,000 US local newspapers and state-of-the-art machine learning methods, we construct a novel 170-year-long time series measure of economic sentiment at the country and state level, which expands the existing measures in both the time series (by over a century) and the cross…

This paper provides new international evidence on the relative equity returns of green and brown firms since 2010. A variety of mechanisms have been proposed by which a firm’s environmental characteristics may affect its financial performance and cost of capital. Brown firms arguably face greater climate-related financial,…

This article attempts to demystify the approach and methodology used to characterize the risk and return relationship in private equity today. The illiquid nature of the asset class makes the demystification of private equity returns difficult to achieve under any circumstances. Still, the framework presented in this article…

We study the effect of an asset’s volatility on the expected returns of European options on the asset. Deriving predictions from a stochastic discount factor model, we show that the effect depends on whether variations in the asset’s volatility are driven by systematic or idiosyncratic volatility.

We study the economic value of market timing in foreign exchange (FX) markets, that is, using information about the conditional Sharpe ratio to adjust the notional value of a conditionally mean–variance efficient currency portfolio. Our strategy trades more (less) aggressively when the conditional risk-return trade-off is…

This article constructs and examines enhanced global return factors. I focus on three different enhancement approaches. First, I incorporate information about the co-variance structure in the cross-section of stock returns. Second, I employ volatility-reducing techniques in the time series. Third, I exploit diversification…

2022 is the best year for factor investing over the last decade. Value generated the best and size the worst return in 2022. Despite the strong returns, investors remain cautious on factor investing.

This paper examines the volatility-return relationship of a market index that incorporates the ESG ratings of the constituent stocks. The study examines the return performance and resilience to the market volatility of the recently introduced ESG weight-tilted Hang Seng Index (HSIESG) compared to its parent Hang Seng Index (…

This study provides cross-market evidence of the impacts of green revenues (GRs) on stock returns. Using 9,367 firm-year observations across 23 different markets in the period from 2016 to 2020, we find that firms with high proportions of GR earn higher returns than those with low proportions of GR. We also examine the role…

Passively managed balanced funds blending stocks and government bonds performed strongly in 2020 during the initial deflationary Covid shock, but were hit hard in its inflationary aftermath with both asset classes dropping sharply over 2022.

The past decade has seen a dramatic growth in sustainable investing—applying environmental, social and governance (ESG) criteria to investment strategies. Investments considered environmentally friendly are often referred to as “green,” while “brown” denotes the opposite. Important questions for investors are: What are the…

The 1993 study “Common Risk Factors in the Returns on Stocks and Bonds” by Eugene Fama and Ken French proposed that in addition to the market beta factor of the capital asset pricing model (CAPM), exposure to the factors of size and value further explain the cross-section of expected stock returns. Fama and French…

Managed futures CTAs have a small risk of ruin that is related to market timing. If the probability of risk of ruin is small but finite, given enough time ruin will occur.

Does trend-following work on stocks, especially on small-cap stocks? Many have misinterpreted answers to this question that have been offered in the past. In this article, we discuss some of the issues with trend-following small caps and present backtest results that we hope will contribute to the ongoing discussion.

This paper compares various machine learning models to predict the cross-section of emerging market stock returns. We document that allowing for non-linearities and interactions leads to economically and statistically superior out-of-sample returns compared to traditional linear models. Although we find that both linear and…