Adaptive Asset Allocation builds on Harry Markowitz’s 1952 Modern Portfolio Theory by providing greater risk management to traditional static allocation models. By adjusting risk exposures within the portfolio in response to the macroeconomic environment, investors can reduce exposure to...

Can ETFs trigger fire sales in illiquid assets? We develop and empirically examine a model where an authorized participant (AP) holds bond inventory and connects the ETF to the underlying bond market. For redemptions, the AP acts as a buffer between the two markets, holding redeemed bonds to...

In his Berkshire Hathaway annual newsletter to investors c.20 years ago, Warren Buffett while discussing the Long Term Capital Management LTCM and Enron collapses, famously called derivatives: "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially...

We measure investors' short- and long-term stock-return expectations using both options and survey data. These expectations at different horizons reveal what investors think their own short-term expectations will be in the future, or forward return expectations. While contemporaneous short-term...

In the financial markets, contradictory opinions generate a set of constraints which mediate information through a system of expected target prices. As a result, prices are a measure of value as much as they are an indication of how these expectations concerning value remain valid. Thus, path...

This paper studies the effect of new fund flows on investment behavior and the resulting equilibrium price of risk. The Small Fund Industry model shows equilibria with overinvestment in unprofitable and underinvestment in profitable investment opportunities. The Large Fund Industry model derives...

This paper proposes a risk-based explanation of the momentum anomaly on equity markets. Regressing the momentum strategy return on the return of a self-financing portfolio going long (short) in stocks with high (low) crash sensitivity in the USA from 1963 to 2012 reduces the momentum effect from...

We report strong evidence that changes of momentum, i.e. "acceleration", defined as the first difference of successive returns, provide better performance and higher explanatory power than momentum. The corresponding Γ-factor explains the momentum-sorted portfolios entirely but not the reverse....

We examine how liquidity and return concerns at large mutual funds explain their diminished participation in small IPOs since the late 1990s. Using 5,825 IPOs and portfolio-level information for 37,052 funds, we exploit Russia's 1998 debt default as an exogenous shock to funds' liquidity...

We systematically study the value of the information contained in closed-end fund (CEF) premiums. We parametrically estimate CEF expected returns as a function of the history of CEF premiums, in addition to the current premium, and buy the quintile of funds with the highest expected returns and...