The value of international diversification was on display from a US perspective in March as foreign stocks and bonds topped the performance list for the major asset classes last month. Markets in the US were mixed: equities inched higher while bonds and real estate investment trusts retreated in the final month of the first quarter.
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Book Bits | 1 April 2017
By Michael Kimelman
Review via Forbes
As former U.S. Attorney Preet Bharara contemplates his next move after being fired by President Trump, he leaves behind a mixed record on insider trading cases. Instead of cleaning up Wall Street by going after senior executives at the big banks who were responsible for much of the 2008 financial crisis, he chose to go aggressively after the hedge fund industry. While he can take credit for convicting, and sending to prison, billionaire Raj Rajaratnam and Goldman Sachs board member Rajat Gupta, he proved to have reached too far by going after Todd Newman and Anthony Chiasson who had their convictions overturned. As most media outlets touted Bharara’s record of wins and losses, few looked into the tactics used to win a number of these cases. Now, Michael Kimelman gives us a view of what it was like.
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Research Review | 31 March 2017 | Managing Portfolio Risk
Bubbles for Fama
Robin M. Greenwood (Harvard Business School), et al.
February 2017
We evaluate Eugene Fama’s claim that stock prices do not exhibit price bubbles. Based on U.S. industry returns 1926–2014 and international sector returns 1985–2014, we present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward; (2) such sharp price increases predict a substantially heightened probability of a crash; (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the run-up, can all help forecast an eventual crash and future returns; and (4) some of these characteristics can help investors earn superior returns by timing the bubble. Results hold similarly in U.S. and international samples.
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Will Tax Reform Boost Economic Growth?
The near-term outlook for the US economy isn’t terrible, but assuming that growth is destined to accelerate sharply due to Trump administration policies looks challenged in the wake of last week’s failed efforts to repeal Obamacare. The question is whether the White House and Republicans in Congress can find legislative success by pivoting to tax reform? The stakes are high because another failure would deal a hefty and perhaps fatal blow to the notion that the so-called Trump bump for the economy is still plausible.
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The Case For Using Random Benchmarks In Portfolio Analysis
Benchmarks are indispensable for investment analytics. The challenge is picking a relevant one. The stakes are high because the wrong benchmark can be worse than none at all. The good news is that the potential for error can be dramatically reduced by choosing a set of random benchmarks that are generated from a portfolio’s holdings.
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US Economic Growth Expected To Hold At Modest Pace In Q1
If you’re looking for an optimistic forecast for the government’s first-quarter GDP report that’s due next month, the New York Fed’s model is just the ticket. The bank is currently projecting that US output will expand 3.0% in Q1 (as of Mar. 24), sharply up from Q4’s 1.9% increase. But optimism is an outlier these days. Projections from other sources suggest that Q1 growth will remain more or less unchanged from the sluggish pace in last year’s final quarter.
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Weaker Dollar Lifts Foreign Bonds As US Equities Fall
Foreign bond markets were in the winner’s circle last week, partly because of the recent slide in the US dollar. The top performer: inflation-linked government bonds ex-US, which posted the strongest gain among the major asset classes, based on a set of exchange-traded products.
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Book Bits | 25 March 2017
Edited by Edward L. Glaeser, et al.
Summary via publisher (Chicago University Press)
The past three decades have been characterized by vast change and crises in global financial markets—and not in politically unstable countries but in the heart of the developed world, from the Great Recession in the United States to the banking crises in Japan and the Eurozone. As we try to make sense of what caused these crises and how we might reduce risk factors and prevent recurrence, the fields of finance and economics have also seen vast change, as scholars and researchers have advanced their thinking to better respond to the recent crises.
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Tracking The Smart Beta Horse Race With ETFs
How’s that factor strategy been working for ’ya lately? That’s a topical question for a growing number of investors as “smart beta” products play a bigger role in portfolio design. You may not be drinking the factor Kool-Aid, but it’s still worthwhile to check in on these risk premia periodically for some context on what’s driving equity performance generally. With that in mind, let’s review a set of eight ETFs that represent the usual suspects in the US equity factor space.
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Smart Beta Asset Allocation: A Preliminary Test
In theory, there’s a strong case for building portfolios based on risk factors. In practice, the jury’s out.
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