Investors take for granted that returns are recorded in units of time, such as days, months, or years. Yet some time periods include unusual events that reasonably cause asset prices to change, whereas other periods are relatively free of unusual events, in which case returns mostly reflect...

Financial analysts assume that the reliability of predictions derived from regression analysis improves with sample size. This is generally true because larger samples tend to produce less noisy results than smaller samples. But this is not always the case. Some observations are more relevant...

Investors rely on the stock-bond correlation for a variety of tasks, such as forming optimal portfolios, designing hedging strategies, and assessing risk. Most investors estimate the stock-bond correlation simply by extrapolating the historical correlation of monthly returns and assume that this...

The authors introduce a new methodology for determining the relative importance of fiscal and monetary policy to promote growth and stabilize inflation. They apply this methodology to a panel of data that spans 66 years and 17 countries. Their analysis shows that, on average, monetary policy is...

Investors have long relied on scenario analysis as an alternative to mean-variance analysis to help them construct portfolios. Even though mean-variance analysis accounts for all potential scenarios, many investors find it difficult to implement because it requires them to specify statistical...

Factor investing has gained widespread acceptance among institutional investors. Some investors believe it is preferable to stratify the investment universe into factors to manage portfolio risk more effectively, while other investors focus on factors because they believe they yield risk...

The authors describe a new prediction system based on the concept of statistical relevance, which defines the most useful observations for forming predictions. Their prediction system also encompasses the notion of fit, which enables one to assess the unique reliability of each individual...

Financial analysts typically estimate volatilities and correlations from monthly or higher frequency returns when determining the optimal composition of a portfolio. Although it is widely acknowledged that these measures are not necessarily stationary across samples, most analysts assume...

The authors introduce a new index of the business cycle that uses the Mahalanobis distance to measure the statistical similarity of current economic conditions to past episodes of recession and robust growth. Their index has several important features that distinguish it from the Conference...

That investors should diversify their portfolios is a core principle of modern finance. Yet there are some periods where diversification is undesirable. When the portfolio’s main growth engine performs well, investors prefer the opposite of diversification. An ideal complement to the growth...