scholarly journals Dynamic Alpha: A Spectral Decomposition of Investment Performance Across Time Horizons

2019 ◽  
Vol 65 (9) ◽  
pp. 4440-4450 ◽  
Author(s):  
Shomesh E. Chaudhuri ◽  
Andrew W. Lo
Keyword(s):  
Tracking Error ◽  
Value Added ◽  
Information Ratio ◽  
Expected Return ◽  
Investment Performance ◽  
Dynamic Component ◽  
Time Horizons ◽  
Security Selection ◽  
Frequency Components ◽  
Investment Process

The value added by an active investor is traditionally measured using alpha, tracking error, and the information ratio. However, these measures do not characterize the dynamic component of investor activity, nor do they consider the time horizons over which weights are changed. In this paper, we propose a technique to measure the value of active investment that captures both the static and dynamic contributions of an investment process. This dynamic alpha is based on the decomposition of a portfolio’s expected return into its frequency components using spectral analysis. The result is a static component that measures the portion of a portfolio’s expected return resulting from passive investments and security selection and a dynamic component that captures the manager’s timing ability across a range of time horizons. Our framework can be universally applied to any portfolio and is a useful method for comparing the forecast power of different investment processes. Several analytical and empirical examples are provided to illustrate the practical relevance of this decomposition. This paper was accepted by Gustavo Manso, finance.

Chains of Freedom

2017 ◽  
Author(s):  
Diane-Laure Arjaliès ◽  
Philip Grant ◽  
Iain Hardie ◽  
Donald MacKenzie ◽  
Ekaterina Svetlova
Keyword(s):  
Detailed Examination ◽  
Investment Performance ◽  
Front Stage ◽  
Back Stage ◽  
Investment Process ◽  
The Way

Chapter 2 begins the detailed examination of the investment chain. It introduces some of the main sets of intermediaries and what their jobs are. The chapter also sketches how those intermediaries enable and constrain each other and form audiences for each other’s presentations of self. Behind the pervasive ‘front-stage’ presentations of an orderly, rigorous investment process, suggests Chapter 2, there lies a normally hidden, more messy, Goffmanesque ‘back stage’ of failures, uncertainties, and sometimes dissent. The chapter also highlights the way in which the numbers that measure investment performance obscure the ethical-political, labour, and legal conditions that make them possible.

Replicating Private Equity with Value Investing, Homemade Leverage, and Hold-to-Maturity Accounting

2021 ◽  
Author(s):  
Erik Stafford
Keyword(s):  
Private Equity ◽  
Small Firms ◽  
Publicly Traded ◽  
Investment Performance ◽  
Value Investing ◽  
Equity Funds ◽  
Private Equity Funds ◽  
Asset Selection ◽  
Investment Process ◽  
Stock Portfolio

Abstract The contributions of asset selection and incremental leverage to buyout investment performance are more important than typically assumed or estimated to be. Buyout funds select small firms with distinct value characteristics. Public equities with these characteristics have high risk-adjusted returns relative to common factors. Adding incremental leverage to a publicly traded stock portfolio increases both risks and mean returns in this sample. Direct investments in private equity funds earn lower mean returns than a replicating strategy designed to mimic these key economic features of their investment process with public equities and brokerage loans.

High Value-Added Business Angels at post-investment stages: Key predictors

2017 ◽  
Vol 35 (8) ◽  
pp. 949-968 ◽  
Author(s):  
Jon Hoyos-Iruarrizaga ◽  
Ana Fernández-Sainz ◽  
María Saiz-Santos
Keyword(s):  
Value Added ◽  
Global Entrepreneurship Monitor ◽  
Business Angels ◽  
Global Entrepreneurship ◽  
Using Data ◽  
Investment Process ◽  
Start Ups

This article examines the differences and features displayed by business angels (BAs), depending on the extent of their involvement with, and support for, the start-ups they finance measured by expertise, experience and contacts. With a sample of 293 Spanish BAs, using data obtained from the Global Entrepreneurship Monitor (GEM) survey, our results indicate that investors who develop more rigorous screening processes in the pre-investment process and hold regular meetings with founder teams are more likely to become High Value-Added Business Angels (HVBAs). Accordingly, the ability of BAs to transfer so-called ‘smart capital’ is conditioned by the levels of screening and assessment applied at the pre-investment stage in terms of both the quality of projects and founder teams and the extent to which the expectations and profiles of the two parties match.

Some Considerations for Investors Exploring ESG Strategies

2019 ◽  
Keyword(s):  
Tracking Error ◽  
Practical Implementation ◽  
Fixed Income ◽  
Security Prices ◽  
Investment Process ◽  
A Company ◽  
Industry Peers ◽  
Over Time

Investors who are concerned about environmental, social, and governance (ESG) factors face numerous questions. In the author’s opinion, investors need to determine which ESG issues are important for them, and how these issues should be reflected in a portfolio. For some strategies, ESG factors are integral to the investment process, whereas for other strategies, ESG factors are best captured via simple and transparent rules (screens and/or tilts). Investors also face several practical implementation choices. Should each company be evaluated on the basis of its current ESG profile, or is the trend more relevant? Should a company be analyzed on a stand-alone basis or relative to its industry peers? And for the strategy, what is the appropriate level of active risk (tracking error) relative to the policy benchmark? In addition, investors need to determine how to monitor any ESG strategy over time, which will help ensure the strategy is performing as expected. In the author’s opinion, perhaps the biggest challenge facing investors is articulating an investment thesis for an ESG strategy. Which ESG factors are already reflected in security prices, and which ESG factors have the potential to drive outperformance? Finally, the article identifies some differences between equity and fixed income strategies as they relate to ESG.

scholarly journals FINANCIAL SOURSCES OF INVESTMENT ACTIVISATION IN RUSSIA

2020 ◽  
Vol 3 (1) ◽  
pp. 3-10
Author(s):  
Alexei V. Alekseev ◽  
Nataliya N. Kuznetsova
Keyword(s):  
Economic Growth ◽  
Empirical Data ◽  
Financial Resources ◽  
Investment Performance ◽  
Investment Process ◽  
Different Sources

The article proves the necessity of the intensification of the investment process as the condition of innovative economics creation in Russia. It is shown that the sharply reduced growth of investments in recent years, poor investment performance in 2018 create severe limitations of the economic growth at least till 2022. We have conducted the analysis of the financial potential of different sources of investment. Based on the analysis of the empirical data, it has been proven that the existing financial resources are sufficient for the sharp intensification of the investment process in Russia.

scholarly journals Portfolio Strategies to Track and Outperform a Benchmark

2020 ◽  
Vol 13 (8) ◽  
pp. 171
Author(s):  
Paskalis Glabadanidis
Keyword(s):  
Factor Model ◽  
Signal To Noise Ratio ◽  
Tracking Error ◽  
Selection Criterion ◽  
Stock Index ◽  
Signal To Noise ◽  
Information Ratio ◽  
Noise Ratio ◽  
Fund Portfolio ◽  
Global Minimum Variance Portfolio

I investigate the question of how to construct a benchmark replicating portfolio consisting of a subset of the benchmark’s components. I consider two approaches: a sequential stepwise regression and another method based on factor models of security returns’ first and second moments. The first approach produces the standard hedge portfolio that has the maximum feasible correlation with the benchmark. The second approach produces weights that are proportional to a “signal-to-noise” ratio of factor beta to idiosyncratic volatility. Using a factor model of securities returns allows the use of a larger number of securities than the number of time periods used to estimate the parameters of the factor model. I also consider a second objective that maximizes expected returns subject to a target tracking error variance. The security selection criterion naturally extends to the product of the information ratio and the signal-to-noise ratio. The optimal tracking portfolio is either a one-fund or a two-fund portfolio rule consisting of the optimal hedging portfolio, the tangent portfolio or the global minimum variance portfolio, depending on what constraints are imposed on the objective function. I construct buy-and-hold replicating portfolios using the algorithms presented in the paper to track a widely followed stock index with very good results both in-sample and out-of-sample.

From stock selection to multi-asset investment management

2019 ◽  
Vol 46 (5) ◽  
pp. 647-661
Author(s):  
Asli Ascioglu ◽  
Kevin John Maloney
Keyword(s):  
Selection Process ◽  
Investment Fund ◽  
Fixed Income ◽  
Stock Selection ◽  
Content Type ◽  
Study Approach ◽  
Equity Funds ◽  
Security Selection ◽  
Governance Process ◽  
Investment Process

Purpose The purpose of this paper is to trace the evolution of the Archway Investment Fund (AIF) at Bryant University from its founding in 2005 as a portfolio focused exclusively on US equities to a multi-asset program that incorporates US equities, non-US equities, equity ETFs, REITs, individual bonds, fixed income ETFs and options. It also describes the explicit introduction of environmental, social and governance (ESG) considerations into the investment process. Design/methodology/approach The paper follows a case study approach. Findings The paper describes the programmatic changes that accompanied this evolution in these areas: finance department curriculum innovations; the investment guidelines and constraints that govern the AIF; the investment process utilized; the oversight and governance process; and the reporting, presentation, and publicity initiatives that keep critical constituencies (university administration, faculty, alumni and students) informed and engaged in this program to sustain its success. Originality/value The vast majority of student-managed funds are equity funds focused on individual stock selection. The AIF is a multi-asset fund with separate equity and fixed income sub-portfolios that explicitly incorporates ESG factors into the security selection process.

Comparative analysis of Shari’ah-compliant portfolios: evidence from Pakistan

2019 ◽  
Vol 10 (3) ◽  
pp. 466-487 ◽  
Author(s):  
Salman Ahmed Shaikh ◽  
Mohd Adib Ismail ◽  
Abdul Ghafar Ismail ◽  
Shahida Shahimi ◽  
Muhammad Hakimi Mohd. Shafiai
Keyword(s):  
Market Timing ◽  
Tracking Error ◽  
Sharpe Ratio ◽  
Information Ratio ◽  
Strategic Positioning ◽  
Decomposition Approach ◽  
Content Type ◽  
Timing Ability ◽  
Equity Funds ◽  
Practical Implications

Purpose This study aims to comparatively analyze the performance of Islamic and conventional income and equity funds using various performance evaluation methods. Design/methodology/approach The authors comparatively analyze the performance of mutual funds using measures, such as tracking error, Sharpe ratio (1966), Treynor ratio (1965), M-square measure by Modigliani and Modigliani (1997) and information ratio. The authors also use market timing and selection measures, such as Treynor and Mazuy model (1966), Henriksson and Merton (1981) model and Fama’s decomposition approach (1973). Findings The authors find that Islamic equity funds are as much competitive as conventional equity funds. All Islamic equity funds have positive Sharpe ratio, Treynor ratio and net selectivity measure. Islamic equity funds are slightly less risky in general. Islamic equity and income funds generally have positive Jensen's Alpha and a positive market timing ability. However, the authors find that Islamic income funds generally underperform the market due to less Shari’ah-compliant investment class assets in the market. Practical implications It will help the industry players to assess their strategic positioning with regard to the commercial competitiveness of Islamic investments. Originality/value The authors take considerably large sample of 60 funds in Pakistan as compared to previous studies and also cover recent period (2006-16). For income funds, the authors construct an original benchmark index based on price and dividend data and use that in performance assessment.

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