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Journal Article

Embracing Downside Risk

This paper shows that downside risk tends to be the main source of long-run returns in equities and other asset classes, and argues that long-term investors may be better off embracing downside risk in certain cases.

Journal Article

To Trade or Not to Trade? Informed Trading With Short-Term Signals for Long-Term Investors

One of the great frustrations in the asset management profession is to watch trading costs render useless a signal that predicts near-term returns beautifully.

Trade Publication

Ahead of the Curve: Time to Embrace Downside Risk

Buying equity put options to reduce a portfolio’s downside risk exposure is so attractive that the high cost of doing so all but offsets the benefit, the authors contend.

Working Paper

Being Right is Not Enough: Buying Options to Bet on Higher Realized Volatility

Should investors who buy options expect to profit when realized volatility increases? If so, under what conditions? To answer these questions, we analyzed the relationship between long volatility performance (buying options) and contemporaneous changes in volatility.

Journal Article

International Diversification Works (Eventually)

Critics of international diversification observe that it does not protect investors against short-term market crashes because markets become more correlated during downturns.

Journal Article

An Alternative Option to Portfolio Rebalancing

We explore how investors can use an implementable option selling overlay to improve portfolio rebalancing.

White Paper

Understanding the Volatility Risk Premium

The volatility risk premium (VRP) represents the compensation that investors earn for providing protection against market losses. We explain the reasons why it may exist and explore its historical performance with a simple option-selling strategy.

White Paper

PutWrite versus BuyWrite: Yes, Put-Call Parity Holds Here Too

Surprisingly, the CBOE S&P 500 PutWrite Index has outperformed the CBOE S&P 500 BuyWrite Index by around 1.1 percent annually between 1986 and 2015. We explain the mystery behind this outperformance and its implications for portfolio construction.

Journal Article

Pathetic Protection: The Elusive Benefits of Protective Puts

Conventional wisdom is that put options are effective drawdown protection tools.

Journal Article

Risk and Return of Equity Index Collar Strategies

Equity index collar strategies are often perceived as a way for investors, at little to no cost, to exchange some upside exposure for reduced losses on the downside.