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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.

Perspective

It Ain't What You Don't Know That Gets You Into Trouble

My colleagues have written two papers questioning things we thought we knew. The first questions what we really know about current stock market valuations forecasting long-horizon future returns and the second explores whether or not the size effect really exists.

Perspective

Sin a Little

We apply value and momentum investing—which we believe to be the strongest empirical regularities in finance—to the age-old task of market timing, long been regarded by many as an investing sin. We find that investors may benefit from a modest amount of marketing timing.

Alternative Thinking

It Was the Worst of Times: Diversification During a Century of Drawdowns

We use nearly 100 years of data to evaluate the effectiveness of diversifying investments during the worst of times for most portfolios and find that attempting to tactically avoid equity sell-offs is likely to disappoint.

Alternative Thinking

Exploring Rates Sensitivity

Fed tightening has many investors interested in risks surrounding monetary policy, rising yields and inflation.

Perspective

Never Has a Venial Sin Been Punished This Quickly and Violently!

Three months ago in “It’s Time for a Venial Value-Timing Sin,” Cliff demonstrated the value factor’s historic cheapness, suggesting it’s time to “sin a little” and modestly overweight value. While portfolio tilts are seldom promptly rewarded, it’s also rare they are instantly punished. In this piece, Cliff shows how 2020 has been the exception to the rule, as value has begun this year with its worst loss in its decade-long drawdown.

Working Paper

Robust Dynamic Asset Allocation With Model Misspecification

This paper derives the optimal dynamic trading strategy when the investor's model of alpha-decay is misspecified. This robust trading strategy can be computed easily by solving a standard linear quadratic Gaussian dynamic programming problem.

Working Paper

One Reason Not to Avoid Market Timing

Market timing should be undertaken only to the extent an investor feels his skills overcome the hurdles.

Journal Article

Market Timing: Sin a Little

Is market timing an easy source of added value or a sin to be avoided? We examine the evidence and find that adding a dose of momentum is a practical way to enhance value timing strategies. Investors may benefit from a modest amount of market timing.

White Paper

An Old Friend: The Stock Market's Shiller P/E

Based on the past, the 2012 level of the S&P 500 Shiller P/E —a particularly useful measure of the valuation of the U.S. stock market—suggests that investors should plan for lower average annual stock market returns over the following decade.