I present a simple mathematical model of mutual fund outperformance in terms of the information ratio (IR), that is, a Sharpe ratio in active space. The strength of the model is that it can be used to deduce the likelihood of K-year persistence as a function of IR, either in time series for a...

The practical implications of modern portfolio theory (MPT) are obscured by more than 50 years of academic literature. We shed light on the literature by picking out the few most important implications of MPT. We argue first that what we dub the “Markowitz uncertainty principle” implies that...

We first wrote and circulated our “Rookie's Guide” paper about the academic labor market for newly minted finance PhDs twenty years ago. It passed hand-to-hand and via photocopies of photocopies sent using snail mail (or, back then, we just called it ‘mail'). Since then, much has changed...

We derive a simple expression for the sensitivity of duration, convexity, and higher-order bond risk measures to changes in term structure shape parameters. Our analysis enables fixed income portfolio managers to capture the combined effects of term structure level, slope, and curvature shifts...

The dramatic increase in the importance of U.S. dividends since 2001 means that financial analysts may soon demand access to updated dividend discount models (DDMs). To address this need, we introduce a new “super annuity formula” that can be used in the modular construction of...