Category: Benchmarks
-
The Low Hanging Fruit of Low Volatility Backtests
Ed. Originally written in 2011. Published in 2013 “Look ma, I have skill!” An idea that would have been regarded as heresy in the 1990s has gained acceptance and respectability: the idea that investors are not rewarded for risk, systematic or otherwise. Thanks to the long-term performance dominance of low volatility assets over the past…
-
Power-Assisted Diversification: A Goldilocks Approach to Benchmark Diversification
TMA: I am pleased to introduce Dorian (Randy) Young as a contributor. Randy is an independent investment professional living in the Bay Area. Power-Assisted Diversification: Not Too Concentrated and Not Too Diversified Dorian (Randy) Young, CFA, CAIA A number of years ago, as someone proficient with benchmark methodologies, I was asked by an investment measurement…
-
Linked performance attribution illustration available
I’ve added a workbook that illustrates how active effects contribute to a fund’s cumulative performance over time. If you think that topic’s a cure for insomnia, get in line. This was the topic of my first project after business school. I’ve been surprised ever since how much understanding components of return affect fund performance ever…
-
Implementation Shortfall with the 200-day SMA Timing Strategy
Yesterday’s post examined the results of following the 200-day SMA rule seemed to work on daily values of the Russell 1000 and 2000. The data showed that a 1-day delay in trading would have benefited the Russell 1000 timer, but hurt the Russell 2000 timer. Today’s post looks at the cost of simply delaying until…
-
Meta Questions on Evaluating Investment Processes
At its essence, due diligence on any investment strategy is aimed at answering whether the existing record is repeatable. Better said, when will the strategy be likely to perform well, however you define ‘well’. Decades of empirical evidence suggest that all investment styles episodically have their day, so after a while you begin to dismiss…
-
There IS a name for that: “Reconstructed” portfolios
In several posts I have struggled to articulate the mathematically convenient concept of a historical representation of an index or portfolio as if its past weights had always been equal to its current weights. I have called the returns to such a time series various terms, including “matrix returns,” “imaginary returns,” and “pro forma returns.”…
-
Strategy implementation: Investing discipline or investing habit?
Over the past 20 years I have spent much time meeting, researching, interviewing, and otherwise picking the brains of traders and investment managers. Most of them could talk your ear off about their discipline and the rationale supporting it. Ultimately, any investing or trading discipline requires that you recognize your edge and execute your strategy…
-
Another Reason Not to Watch CNBC When the Market is Open
Stocks seem to earn their returns when the market is closed. When you compare the returns on stocks overnight to the returns intraday, overnight dominates. You really don’t want to know how bad the performance is during the day. While you’re unlikely to profit by this finding, Eric Falkenstein recently documented the size of the…
-
EDHEC Efficient Equity Indices and Benchmarks
Yesterday I attended a presentation by EDHEC on their Efficient Equity Indices and Benchmarks. Efficient Indices (EI) are a family of equity indices EDHEC created that are alternatives to market capital weighted indices (MCI). One of the most well-known family of non-MCI is Research Affiliates Fundamental Indexes (RAFI), which bases its asset weights on fundamental…