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Alternative Thinking

Relaxed-Constraint Portfolios

Active equity investors may increase expected portfolio returns by relaxing the long-only constraint. The investment community has largely turned away from strategies that short bad stocks, but we find that they may want to take a renewed look.

Trade Publication

Fool Me Twice, Shame On Me

Many Wall Street strategists are calling the stock market “undervalued” today based largely on how far and fast it has fallen over the last two years, and the coming prospects for economic recovery.

Working Paper

Bubble Logic: Or, How to Learn to Stop Worrying and Love the Bull

A bull market produces stories, often absorbed by investors engaged in wishful thinking, that encourage the purchase or retention of stocks or mutual funds. This has led them to bid up stocks so high that even long-term investors will be disappointed.

Chief Investment Quarterly

Late Cycle Syndrome

The concern that the economy is nearing the end of its expansion phase has important implications for investors. We take a look at the data on “late cycle” indicators to see what they really tell us.

Chief Investment Quarterly

Buffett's One Choice Buffet

We challenge an assertion in Warren Buffett's latest annual letter and emphasize the need for diversification for pensions and endowments.

Working Paper

Does Credible Mean Reliable?

Are independent revaluations more reliable than those conducted by corporate directors? We examine whether high quality independent valuers provides a credible evaluation about the underlying reliability of recognized asset revaluations.

Working Paper

Deleveraging Risk

Using various measures of short selling activity for a large sample of U.S. securities, we find evidence that deleveraging risk—the risk of losses due to a sudden and widespread reduction in stocks held by levered investors—affects equity returns.

Working Paper

The Earnings Announcement Premium and Trading Volume

We measure and provide explanation for the earnings announcement premium, when stock prices rise around scheduled earnings announcement dates. We show that the premium is large and strongly related to the surge in volume around announcement dates.

White Paper

Covered Calls and Their Unintended Reversal Bet

Equity index covered calls have historically realized returns not much less than their underlying index with significantly less volatility.

Working Paper

Measuring the Risk-Return Trade-Off With Time-Varying Conditional Covariances

We explore strategies for estimating the price of risks in Merton’s intertemporal capital asset pricing model (ICAPM). Prior literature finds insignificant estimates of the risk-return tradeoff when using only the market return—but we find otherwise.