Wall Streeters know that performance varies from one time interval to another, that there are a semi-infinite number of time intervals, and that there are always many such periods with plausibly good performance. Wall Streeters also know that various computations of performance give different...

The principles of behavioral psychology can explain how crashes occur. In particular, the concept of "stimulus generalization" tells us that organisms tend to respond in the same way to similar stimuli. In a crash, or pre-crash, context, several stimuli - including rising prices, above-average...

A widespread concern in the investment industry is whether commonly used investment management fee arrangements encourage investment managers to act in their clients' interests. The value to managers of a one-period call performance fee is maximized by maximizing performance volatility. This is...

The stock market is not likely to be efficient. This paper provides examples of why. Specifically, it shows how lack of understanding by investors and financial analysts can distort prices in relation to fair value

High expected returns are attractive but are associated with high risk. Ultimately, risk shows up as volatility. Volatility is a fundamental feature of a business but can be increased through firm or investor leverage. Volatility without leverage significantly reduces long term return. Leverage...

An idealized model of the investment process redefines the respective roles of security analysts and portfolio managers, quantifies such concepts as activity and aggressiveness, and explains how the individual analyst's efforts at forecasting returns translate into improved portfolio performance

This article provides empirical support for the theory that closed-end fund discounts reflect expected investment performance. Evidence is presented to explain how equity closed-end fund initial public offerings (IPOs) can sell at a premium when existing funds sell at a discount and why the...

There is some threshold level of competence among multiple active managers above which an inventory fund will be superior to an index fund. When active managers' trades are genuinely valuable, however, a better approach is to treat them as sources of estimates, not transactions, combining...

The authors charge that investment managers overwhelm potential clients with theories and statistical tests that strongly suggest their good past performance was no accident and will continue. They contend that experience suggests otherwise and that both statistics and theory can seem quite...