Recent studies in financial economics posit a connection between a gross prof- itability strategy and quality investing. We explore this connection with two widely used factor models. The first is the four-factor Fama-French-Carhart model, which is a mainstay of empirical research in academia....

A long-only investable minimum variance strategy outperformed the S&P 500 over the four decades from January 1973 to December 2012. Through the lens of a factor model, we show this outperformance can be largely attributed to implicit style bets. Specifically, minimum variance has thrived by...

Risk-only investment strategies have been growing in popularity as traditional investment strategies have fallen short of return targets over the last decade. However, risk-based investors should be aware of four things. First, theoretical considerations and empirical studies show that...

The cumulative return to a levered strategy is determined by five elements that fit together in a simple, useful formula. A previously undocumented element is the covariance between leverage and excess return to the fully invested source portfolio underlying the strategy. In an empirical study...

An influential observation has the potential to render a model unsuitable for estimation with an OLS regression. This is well known in the statistics literature. However, the use of standard measures for detecting and managing influential observations is not common practice in empirical finance....

Endowments, foundations and individual investors considering the divestment of carbon industries need to know the potential impact on risk and return. In this paper, we analyze the cost of divesting from broad market indices. Our key findings are:• Optimized carbon-free portfolios closely...

Wrong way risk can be incorporated in Credit Value Adjustment (CVA) calculations in a reduced form model. Hull and White (2012) introduced a CVA model that captures wrong way risk by expressing the stochastic intensity of a counterparty's default time in terms of the financial institution's...

The distinctive financial goals and constraints of ultra-high net worth individuals together with their aggregate growth in assets have led to the emergence of “New Institutional” investing, which includes the best practices from institutional investors but incorporates the critical element...

Tax-loss harvesting can improve the after-tax returns of factor-tilted strategies. In an empirical study of global and US strategies, we found that the tax alpha generated by harvesting losses augmented the return premium, or factor alpha, in six factor-tilted strategies.- The annual tax alpha...

The authors extended the standard paradigm for portfolio stress testing in two ways. First, they introduced a toolkit that enables investors to envision and administer extreme scenarios. The risk model is integral to the stress test. They demonstrated the substantial impact of using historical...