We recently posted a piece on factor investing (here) so we were thrilled to have an opportunity to see Dr. Andrew Ang and Don Raymond discuss factor investing at a seminar in Toronto last week. Dr. Ang is Ann F. Kaplan Professor of Business and Chair of the Finance and Economics Division at Columbia Business School, while Dr. Raymond is Adjunct Professor of Finance and past Chair of the International Centre for Pension Management at University of Toronto’s Rotman School of Business.
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Valuation Based Equity Market Forecasts: Q2 2014
We endorse the decisive evidence that markets and economies are complex, dynamic systems which are not reducible to linear cause-effect analysis over short or intermediate time frames. However, the future is likely to rhyme with the past.
Keep ReadingValuation Based Equity Market Forecasts – Q2 2014
Any analysis that relies on the past to offer guidance about the future makes the strong assumption that the future will in fact resemble the past. We have no guarantee that this will be the case. Many optimistic analysts…
Keep ReadingDo You Spinu? A Novel Equal Risk Contribution Method for Risk Parity
Risk Parity seems to have (temporarily?) lost its place near the top of the institutional asset allocation wish list, no doubt because it proved vulnerable to policy shocks during last year’s central bank equivocation. Nevertheless we continue to believe the concept is valuable if thoughtfully applied.
Keep ReadingCluster Shrinkage
In this article, we would like to integrate the cluster concepts we introduced in our article on Robust Risk Parity with some ideas proposed and explored by Varadi and Kapler in the last few months
Keep ReadingFaber’s Ivy Portfolio: As Simple as Possible, But No Simpler
We’ve been discussing sources of performance decay, degrees of freedom, and the implied statistical significance of systematic trading strategies, so I was pleased when some recent articles triggered an idea for a related case study.
Keep ReadingValuation Based Equity Market Forecast – December 2013 Update
We first published a valuation based market forecast in September of 2010. At that time we used only the Shiller PE data to generate our forecast, and our analysis suggested investors should expect under 5% per year after inflation over the subsequent 10 year horizon. Over the 40 months since we have introduced..
Keep ReadingDynamic Asset Allocation for Practitioners Part 5: Robust Risk Parity
In our article on Structural Diversification we explored the idea of holding a universe of assets which, when assembled in thoughtful proportion, might be expected to protect investors against the four major market regimes that they might encounter over the long term.
Keep ReadingDynamic Asset Allocation for Practitioners Part 4: Naive Risk Parity
Our last ‘prequel‘ article explored the creation of a policy portfolio that utilizes a framework of structural diversification to hedge against the four major market regimes – inflationary boom, deflationary boom, stagflation and deflationary bust. In the conclusion of the article we said we would investigate a variety of quantitative methods of risk diversification to complement the more theoretical construct of structural diversification. This next instalment introduces naive risk management methods.
Keep ReadingValuation Based Equity Market Forecasts – Q1 2013 Update
To be crystal clear, the commentary below makes no assertions about whether markets will carry on higher from current levels. Expensive markets can get much more expensive in the intermediate term, and investors need look no further back than the late 2000s for just such an example.
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