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Alternative Thinking

2021 Capital Market Assumptions for Major Asset Classes

We update our estimates of medium-term (5- to 10-year) expected returns for major asset classes. We also discuss what investors should expect from the stock-bond correlation in the coming decade.

Alternative Thinking

Fire and Ice: Confronting the Twin Perils of Inflation and Deflation

The COVID-19 pandemic and the responses to it by governments, central banks and consumers have unleashed both disinflationary and inflationary forces, but we do not know which forces will win over the longer term. We explore the historical inflation sensitivities of a range of different investments and present the benefits of both risk-balanced asset allocations and dynamic directional strategies to prepare for uncertain times.

Alternative Thinking

Was That Intentional? Ways to Improve Your Active Risk

Investors try to outperform their strategic asset allocation benchmarks by taking active risks. Some of these are intentional, but others are low-conviction or even unintentional, which can be a large part of a portfolio’s total active risk. When it comes to beating a strategic asset allocation benchmark, reducing these unintentional active risks may among the clearest sources of “low hanging fruit”.

Working Paper

Biases in Long-Horizon Predictive Regressions

This paper derives the small sample bias of estimators in J horizon predictive regressions, providing a plug-in adjustment for these estimators. A number of surprising results emerge, including a higher bias for overlapping than nonoverlapping regressions despite the greater number of observations and particularly higher bias for an alternative long-horizon predictive regression commonly advocated for in the literature.

Alternative Thinking

2020 Capital Market Assumptions for Major Asset Classes (Supplemental Estimates as of March 31, 2020)

This supplement provides a special update to our estimates of medium-term (5- to 10-year) expected returns for major asset classes. This update reflects the large changes in prices for many asset classes due to the impact of COVID-19 in Q1 2020.

Alternative Thinking

2020 Capital Market Assumptions for Major Asset Classes

We update our estimates of medium-term (5- to 10-year) expected returns for major asset classes, and introduce a method for quantifying the expected return on cash.

Alternative Thinking

2019 Capital Market Assumptions for Major Asset Classes

We update our estimates of medium-term (5- to 10-year) expected returns for major asset classes, including private equity and private real estate.

Journal Article

An Alternative Option to Portfolio Rebalancing

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

Alternative Thinking

Capital Market Assumptions for Major Asset Classes

We update our medium-term expected returns for major asset classes and explore the historical accuracy of yield-based return estimates.

Journal Article

Asset Allocation in a Low Yield Environment

In 2016, bond yields dropped to unprecedented low levels in major developed markets. Even in a low rate environment, we think it’s important to diversify across many return sources.