Q&A: Equilibrium During a Downturn?
The Dow peaked around 14K in October 2007, one year later the Dow went to 7500. Was the market really in equilibrium last October given that it was on the verge of such a steep collapse? How can one...
View ArticleQ&A: Factor Correlations
Are the Fama/French factors more correlated when markets go down? Are value portfolios riskier in bad times? EFF/KRF: The two questions are related. Throughout the period from 1926 to now, small stocks...
View ArticleQ&A: Deflation Hedge
Should I put some portion of my portfolio in long-term US Treasury bonds as a hedge against deflation? EFF/KRF:Â Perhaps, but you would have to put a high probability on deflation. Severe downturns in...
View ArticleQ&A: Securities Lending
Does it make sense to lend securities to speculators who are driving down prices and contributing to the volatility in the markets? Sure, the revenue from lending is nice, but if security lending...
View ArticleQ&A: Stick with Passive Management?
Does passive management makes sense in all market conditions? EFF/KRF: Active management is always a zero sum game, before fees, expenses, and trading costs, regardless of market conditions. If there...
View ArticleQ&A: The Impact of Fiscal Stimulus
What are the possible impacts from the ballooning Federal Reserve balance sheet? Will this necessarily lead to an inflationary environment? Is deflation a possibility? Are there any charts or figures...
View ArticleQ&A: Avoid Firms in Trouble?
It seems obvious now that firms facing extreme financial difficulty should be avoided. EFF: This is a market efficiency question. If firms facing extreme financial difficulty are properly priced to...
View ArticleQ&A: Expected Return and Stimulus Efforts
What can we say about expected return if we do not think the stimulus plan can have positive impact on the economy? EFF/KRF: The recent sharp decline in prices suggests that the market does not think...
View ArticleQ&A: Do Fundamentals Tell Us When Stocks Are Overpriced?
In their book Valuing Wall Street published in early 2000, Andrew Smithers and Stephen Wright claim that the q ratio popularized by Nobel laureate James Tobin reliably identifies periods of extreme...
View ArticleQ&A: Bankrupt Firms: Who's Buying?
Why do shares of widely held bankrupt firms such as GM often trade well above zero even though the interests of common stock holders appear almost certain to be eliminated in reorganization? Is this...
View ArticleQ&A: Does Gold Belong in My Portfolio?
Based on spot price data from January 1970 through February 2010, the average return on gold bullion was almost exactly the same as the S&P 500 at 88 basis points per month. Volatility was...
View ArticleQ&A: Semi-Variance: A Better Risk Measure?
Is semi-variance a more useful measure of downside risk than standard deviation? My clients aren't worried about market surges, they're worried about market crashes. (Read the full entry)
View ArticleQ&A: Is Insider Trading Beneficial?
Some economists argue that prohibiting insider trading does more harm than good by reducing the flow of useful information. Do you agree? (Read the full entry)
View ArticleQ&A: Reducing Risk with Options
Can put or call options be used to achieve a more predictable risk-return tradeoff? For example, should I purchase put options to minimize equity portfolio losses? (Read the full entry)
View ArticleQ&A: Public vs. Private Equity
Should investors expect higher returns from private equity investments as compensation for the lack of liquidity? Does private equity offer a useful diversification benefit in a balanced portfolio?...
View ArticleQ&A: The Limits of Arbitrage
To what extent do the limits of arbitrage (Schleifer and Vishny, 1997) discredit the idea of market efficiency? (Read the full entry)
View ArticleQ&A: Are Chief Executives Overpaid?
What model for executive compensation at public companies would you like to see? Should shareholders vote on these matters? (Read the full entry)
View ArticleQ&A: Are Treasury Bonds Risk-Free?
Does the deteriorating financial condition of the U.S. government diminish the appeal of U.S. Treasury securities as a risk-free asset? Should investors consider adding government securities from other...
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