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Perspective

Response to Thomas Hoenig’s “Why ‘Risk-Based’ Capital Is Far Too Risky”

My colleagues have written a response to Thomas Hoenig's recent WSJ op-ed "Why 'Risk-Based' Capital Is Far Too Risky." Hoenig's recommended approach to managing leverage risk using a "simple" notional leverage limit reminds us of Einstein's famous purported comment to make things as simple as possible, but not simpler. The authors believe that Hoenig's approach fails to meet the Einstein test.

Perspective

The George Costanza Portfolio

In a follow-up to Liquid Alt Ragnarök?, Cliff shows the results of an illustrative portfolio that does the opposite of what we’d normally do in the spirit of George Costanza, who in one episode of Seinfeld decided he must, in all things, do the opposite of what he’d normally do.

Perspective

Factor Investing Explicitly Tries to Look Lousy on Active Share

There has been much ink, and maybe even some blood, spilled debating the merits of “Active Share” for judging an investment fund. Cliff reviews the frequent misueses of active share, especially related to applying it factor investing

Perspective

Active Share: Different Does Not Equal Better

A buzzword in the investment community these days is active share, a specific way to measure how different a portfolio is from its benchmark. But does it predict higher excess returns? Our AQR white paper, “Deactivating Active Share,” takes a look.

Perspective

Looking for the Intuition Underlying Multi-Factor Stock Selection

Cliff points out that although the benefits of combining factors into a diversified portfolio are large and well understood, one obstacle for many is gaining intuition about results. He tries to help.

Perspective

Quant Cassandra

If all of us, as investors, can persevere, we believe the long-term benefits are great. But even knowing all this in advance doesn’t make it easy. Hopefully, this reminder of what we all knew sixteen long months ago is helpful.

Perspective

Serenity Now

What can you do when you are going through a very tough time? You continue to invest in the business including building the highest quality teams in the industry.

Perspective

Perhaps the Most Important Essay I Will Ever Co-Author

We model when a hockey coach should pull the goalie when trailing and then discuss how our results relate to key lessons for portfolio and risk management, and business in general.

Perspective

Once More, Without Feeling

Cliff discusses why many of the breathless articles and TV headlines we’ve seen lately about the overall U.S. stock market are just not that interesting.

Perspective

The Illiquidity Discount?

Conventional wisdom is you get an expected return premium for bearing illiquidity. But what if this is backwards? What if investors will actually pay a higher price and accept a lower expected return for very illiquid assets?