In this short note, we show investors one way to calculate ideal investment sizing by using two rules of thumb based on a simple outline of individual risk aversion. We illustrate these two heuristics, which are not widely appreciated, with thought experiments involving coin flips and ketchup &...

For US investors, international equity exposure has never been so readily available at such a low cost. Nonetheless, surveys indicate US investors typically allocate 80–85% of their equity holdings to US equities, much higher than their proportion of global market value. In this note we...

We introduce a hierarchical Bayes approach to model conditional firm-level alphas as a function of firm characteristics. Our empirical framework is motivated by growing concerns in the literature regarding the reliability of inferences from portfolio-based methods. In our initial tests, we...

In this note we present several thought experiments involving coin-flipping to illustrate the common tendency to over-weight past data in forecasting the future, particularly in the context of investment returns. We start by describing a survey we conducted of about 700 respondents involving the...

I analyze the effects of model misspecification on default swap spreads and equity prices for firms that are not perfectly transparent to the investors. The agents in the economy are misspecification-averse and thus assign higher probabilities to lower utility states. This leads to higher CDS...

A sound policy for spending wealth over time is as important as a sensible investment policy. It's a complex problem for taxable individuals with finite, uncertain longevity. A good start is thinking about the simpler problem of how one would spend if immortal. This is exactly the real problem...

This paper introduces a new methodology to estimate time‐varying alphas and betas in conditional factor models, which allows substantial flexibility in a time‐varying framework. To circumvent problems associated with the previous approaches, we introduce a Bayesian time‐varying parameter...

The US Treasury effectively ”owns” about 24% of the stocks held by high income US taxable investors. Through the capital gains tax, Uncle Sam has an effective exposure of more than $1 trillion of equities. And this huge-but-silent investor might be about to get a lot bigger if capital gains...

In practice, traders, such as high-frequency and day traders, rely in part or primarily on moving averages to predict market directions, but their equilibrium impact is unknown. This paper presents a model to analyze how such technical traders compete trading with informed investors and how they...

Analysts with above-median risk-adjusted performance in the estimation period persistently outperform those with below-median performance in the subsequent holdout period. The annualized risk-adjusted returns of trading strategies based on performance persistence are statistically and...