Guest columnists from Tesseract Asset Management look at investor behavior and risk management.
Two scholars have published a new model of private equity funds, looking for the real drivers of abnormal returns by process of elimination.
You can't expect to harvest much alpha if you simply buy on good sentiment as measured through news or on the web, and sell on negative sentiment. As the authors of this white paper put it in quant-speak, such predictive value as these measures have 'does not translate ... cleanly into return space.'"
Clifford Asness and Andrea Frazzini show that an important detail in the way scholars go about studying factor pricing and behavioral finance is seriously flawed. The detail in question dates to an influential paper by Eugene Fama and Kenneth French, "The Cross-Section of Expected Stock Returns," (1992).
In a new paper, Andrew Lo has educed from his Adaptive Markets Hypothesis five practical conclusions, among them that during times of crisis, the usual positive relationship between risk and return may not hold. There is in general a "time-varying and often negative relationship between the two."