Anticipating Buyout Deals: A Prospective New Model on an Old Strategy
Milind Sharma and Aravind Ganesan have developed what they call the QMIT Leveraged Buyout Model—a trading strategy—based on anticipating announcements of LBOs based on QMIT’s factor library. Sharma is...
View ArticleZebras Are Reactionaries
Someone told me that it’s all happening At the Zoo. In this case, it was Paul Simon in his 1967 title song where he anthropomorphizes the animals he sees in the Central Park Zoo. Some are deemed to be...
View ArticleGoldman Sachs Puts Stop-loss on Options
Goldman Sachs threw in the towel two years ago. Well, “a towel,” anyway. Goldman has lots of towels. But two years ago, Goldman gave up on market making at the US options exchanges. In time for the...
View ArticleLow Vol vs Option-Based Strategies
By Nicolas Rabener of FactorResearch (@FactorResearch) INTRODUCTION Some investment products and strategies can be considered toxic given their history on Wall Street. Portfolio insurance is rarely...
View ArticleValuation: A New Approach to an Old Financial Tool
Zane Swanson, an accounting professor at the University of Central Oklahoma, has been at work on a fascinating new approach to the valuation of firms and the valuation of their equity shares. This...
View ArticleMeet the New Crisis: Looks Like the Old Crisis
Last month saw an extraordinary spike in the interest rates of the repo market—the market that consists of the (very) short-term, usually the overnight, borrowing of government securities. Hedge funds,...
View ArticleBitcoin Derivatives Behaving Just Like Other Underlying Assets
Bitcoin derivatives act a lot like the derivatives of other asset classes. Two scholars at the University of London recently looked at bitcoin’s “volatility smiles and skews” as found in the short and...
View ArticlePast performance guarantees no future results
Since, as everyone says, “past performance is no guarantee of future results,” a history of close correlation between two assets, or between a single asset and a benchmark, is no guarantee of future...
View ArticleHow to Improve Momentum Risk Management
Matthew X. Hanauer and Steffen Windmueller, two scholars affiliated with the Technical University of Munich, compare the performance of three risk management approaches applicable to the momentum...
View ArticleAlternative Investments: Investing By Numbers
What’s in the future for alternative investments asset management? A new publication from Ernst & Young, London, contends that allocations to alternative investments and are “robust,” but that...
View ArticleRequiem for a Heavyweight
By Bill Kelly, CAIA Association CEO A requiem is a solemn chant for the repose of the dead. Chant-worthiness when it comes to the Enron Corporation is still subject to much debate depending, of course,...
View ArticleAn Alternative View of Manager Selection Risk
By Aaron Filbeck, CFA, CAIA, CIPM & Hossein Kazemi, PhD, CFA, CAIA Association & CISDM This is a summary of the editor’s letter originally published in the Volume 8, Issue 4 of the Alternative...
View ArticleHope May Not Be a Strategy…But Neither is a 60/40
By Guest Contributor Aaron Filbeck, CFA, CAIA, CIPM, Associate Director, Content Development The death of the 60/40 may be a welcome change for multi-asset investors who understand that exposure to...
View ArticleFalse Positives and Machine Learning
There is a high rate of failure among quant funds. These include smart beta, factor investing, statistical arbitrage, and CTAs. Such false positive strategies are a widespread industry problem. Since...
View ArticleCAIA Alternative Viewpoint: Risk Parity
Mean variance optimization (MVO) is a simple, yet well-regarded asset allocation technique designed to create a portfolio that maximizes it’s expected level of return for a given level of standard...
View ArticleSASB + TCFD = Common ESG Disclosure Standards?
The Sustainability Accounting Standards Board (SASB), a non-profit organization has developed industry-specific standards across environmental, social, and governance topics, working toward a consensus...
View ArticleTaleb: What Size Tail Does the Smart Money Bet On?
Statistician/philosopher Nassim Nicholas Taleb critiques “behavioral” economics and finance as he looks at the differences between “binary forecasts” and “real world payoffs,” in a recent paper for the...
View ArticleIn the room where it happens: An investigation of the potential of regulatory...
Keith Black, PhD, CFA, CAIA, FDP, Managing Director of Content Strategy at CAIA Association Do you want to be in the room where it happens, when “The Smartest Guys in the Room”* are plotting their...
View ArticleReal Assets ‘Inception:’ Diversification within Diversification
By Aaron Filbeck, CFA, CAIA, CIPM, Associate Director, Content Development at CAIA Association Excerpted from the Alternative Investment Analyst Review, Volume 8, Issue 1 The Alternative Investment...
View ArticleDiversification Strikes Back!
By Aaron Filbeck, CFA, CAIA, CIPM, Associate Director, Content Development at CAIA Association, and Keith Black, PhD, CFA, CAIA, FDP, Managing Director, Content Strategy at CAIA Association...
View ArticleUsing Alternative Data and Machine Learning in Alternative Asset Classes
Keith Black, PhD, CFA, CAIA, FDP, Managing Director of Content Strategy, CAIA Association Michael Oliver Weinberg and Peter Strikwerda work at the Dutch pension fund APG and serve as the head of hedge...
View ArticleCovid-19 Alpha
Chris Holt, PhD, CAIA, Senior Advisor, CAIA Association and Associate Director, MBET Program at University of Waterloo During the Global Financial Crisis, the financial world learned that, in times of...
View ArticleTime-varying Volatility Adds a Critical Dimension to Diversification
By Masao Matsuda, CAIA, FRM, Founder, Crossgates Investment and Risk Management In January 2020, the CAIA New York Chapter organized an event titled “Volatility? Downside Protection? Asset Allocation...
View ArticleModel Risk Management as Algo Trading Expands
The FICC Market Standards Board Ltd. (FMSB) is a London-based standards body for participants in the wholesale fixed income, currencies, and commodities (FICC) markets. It has been looking into the...
View ArticleVolatility Forecasting Across the Financial Markets
By Mark Caslin, CEO, Alder Capital Uses of volatility forecasting in financial markets Volatility is generally accepted as the best measure of market risk and volatility forecasting is used in many...
View ArticleTime-varying Equity Volatility Markedly Affects Hedge Fund Performance
By Masao Matsuda, CAIA, FRM, Founder, Crossgates Investment and Risk Management One would think hedge funds can weather market gyrations better than long-only equity investments as hedge funds have...
View ArticleStewardship: It Hertz When You Ignore It
Hertz has been around for just over a century. It was started by a fellow name Jacobs in the city of Chicago with a very modest fleet consisting of about a dozen Model Ts. The ensuing years would find...
View ArticleVariance Risk Premium: What Premium?
By Nicolas Rabener of FactorResearch (@FactorResearch) INTRODUCTION Investing is akin to fighting in the forever war. There are long periods of peace and prosperity, but investors are frequently drawn...
View ArticleThe Inflation-Deflation Debate and its Implication for Asset Allocation
By Alan Dunne, Managing Director, Abbey Capital One of the key questions facing investors at the moment is whether inflation or deflation represents the bigger risk for the coming years. Economists are...
View ArticleAn ‘Alternative’ Safe-Haven
By Karl Rogers, ACE Capital Investments Abstract: The sovereign bond market has traditionally been a widely used tool for portfolio construction given its dual characteristics of returning a real yield...
View ArticlePutting 2020 into Perspective: Diversification May Work Better than You Think
By Rodney Sullivan, CFA, CAIA, Executive Director, University of Virginia Darden School of Business US recessions are typically accompanied by declines in stock market returns and, of course, 2020 has...
View ArticleIS DOWNSIDE RISK PRICED IN CRYPTOCURRENCY MARKET?
By Victoria Dobrynskaya, PhD, associate professor of Finance at National Research University Higher School of Economics Looking at the whole cryptocurrency market through the prism of standard...
View ArticleWhy Alternative Investment Operations Still Matter
By Jason Scharfman Esq., CFE, CRISC, CAMS, CAIA Managing Partner, Corgentum Consulting As an operational due diligence (ODD) professional who performs ODD reviews of alternative investment managers on...
View ArticleOECD Works on Sorting Through the ESG Ratings Systems
A report from the Organization for Economic Cooperation and Development critiques “current market practices” in connection with Environmental, Social, and Governance investing. It says that the...
View ArticleKeynes vs. Markowitz ‘Thrilla in Portfolia’
By Hossein Kazemi, PhD, CFA, CAIA Association, FDP Institute, and Isenberg School of Management Introduction While Keynes vs. Markowitz is not as thrilling as Ali vs. Frazier, it has important...
View ArticleMeasuring the Inflation Risk of Three ‘Inflation-Hedges’
By Doris Bao, FRM and Alex Botte, CFA, CAIA, Client Solutions Research team at Two Sigma In our previous post on inflation, we covered how the Local Inflation risk factor in Venn, Two Sigma’s risk...
View ArticleThe New Generation of Behavioral Finance
Meir Statman, a professor of finance at Santa Clara University and a consultant to Avantis Investors, has focused his scholarly efforts for decades on behavioral finance, and those efforts have given...
View ArticleUsing ESG as a Risk Management Tool
In the first half of 2020, a period dominated by the spread of the Covid-19 virus and by the shut-down of economic activity in country after country around the world, investing with an eye to...
View ArticleThe Often-Forgotten Art and Science of Manager Due Diligence
By Shana Sissel, CAIA – Chief Investment Officer of Spotlight Asset Group For almost two decades I have worked in roles that were heavily focused on investment manager due diligence across asset...
View ArticleStrategic Note: Improved Smile-Implied Hedging
A recent paper by two Canadian scholars looks to improve on the art of smile-implied option replication. Pascal Francois, of the HEC Montreal Department of Finance, and Lars Stentoft, of the University...
View ArticleImproving Time Travel in Long-Term Investing
By Ashby Monk and Dane Rook, Stanford Global Projects Center To succeed at investing, you must master time travel.[i] You need to be proficient at beaming yourself into a hypothetical future, and then...
View ArticleEnhancing an Income Portfolio with Factor Design
By Daniel Fang, CFA, CAIA, Lead Portfolio Manager at Emotomy, and Sabrina Bailey, CEO at Emotomy Interest Rates to Stay Lower for Longer Since the Great Financial Crisis, central banks across all major...
View ArticleThe Art of Due Diligence, Part I: The Story Beyond the Numbers
By Keith Black, PhD, CFA, CAIA, FDP, Managing Director, Content Strategy, CAIA Association and Mark S. Rzepczynski, PhD, Founding Partner and CEO, AMPHI Research and Trading Given the reliance on...
View ArticleThe Art of Due Diligence, Part II: The Good News for Emerging Managers
By Keith Black, PhD, CFA, CAIA, FDP, Managing Director, Content Strategy, CAIA Association, and Mark S. Rzepczynski, PhD, CEO, AMPHI Research and Trading Managing alternative assets is especially...
View ArticleAxe Capital and Spartan-Ives: The Impact of Prime Broker Relationships
By Hossein Kazemi, PhD, CFA, CAIA Association, FDP Institute, and Isenberg School of Management Introduction Bobby Axelrod had a good day on June 10, 2018. On this day, Axe Capital’s manager took the...
View ArticleBreaking the Fourth Wall of ESG
By Aaron Filbeck, CFA, CAIA, CIPM, FDP, Director of Global Content Development at CAIA Association “In a real magic act, everything is fake.” – Wanda Maximoff, WandaVision (2021) A harmless phrase used...
View ArticleWhat Hedge Fund Risk Systems Don’t See
By Linus Nilsson and Rikard Lundgren Many investors, trading floor managers, fund of fund allocators, and risk managers have experienced unexpectedly large losses that were not predicted by their risk...
View ArticleResponsible Investment – Are You Ready?
By Maria Long, Content Director, The Standards Board for Alternative Investments (SBAI) Responsible Investment (“RI”), also known as ESG Investing or Sustainable Investing, is a growing area of...
View ArticleCulture Eats Sharpe Ratios for Breakfast
By John Bowman, CFA, Senior Managing Director, CAIA Association This article was originally posted on FundFire on March 24, 2021. Alternative fund manager due diligence has an execution problem. The...
View ArticleGump’s Law and the Butterfly Effect
By Alexander Ineichen, CAIA, CFA, FRM At the beginning of 2019, 50 out of 50 economists surveyed by the Wall Street Journal thought that 10-year Treasury yields wouldn’t fall below 2% during the year....
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