Factor investing asks: how well can a particular investor weather hard times relative to the average investor? Answering helps her reap long-run factor premiums by embracing risks that lose money during bad times, but make up for it the rest of the time with attractive rewards. When factor...

Mean-variance investing is all about diversification. Diversification considers assets holistically and exploits the interaction of assets with each other, rather than viewing assets in isolation. Holding a diversified portfolio allows investors to increase expected returns while reducing risks....

After taking into account biases induced by infrequent trading and selection, it is unlikely that illiquid asset classes have higher risk-adjusted returns than traditional liquid stock and bond markets. On the other hand, there are significant illiquidity premiums within asset classes. Portfolio...

Long‐horizon investors have an edge. They can ride out short‐term fluctuations in risk premiums, profit from periods of elevated risk aversions and short‐term mispricing, and they can pursue illiquid investment opportunities. The turmoil we have seen in the capital markets over the last...

Regime switching models can match the tendency of financial markets to often change their behavior abruptly and the phenomenon that the new behavior of financial variables often persists for several periods after such a change. While the regimes identified by regime switching models are...

Traditionally, “real” assets such as inflation-indexed bonds, commodities and real estate were thought to have correlate well with inflation and thus provide protection against rising price levels. But many of these assets turn out not to be that “real.” While a single real bond provides...

The foundation for a long-term investment strategy is rebalancing to fixed asset class positions, which are determined in a one-period portfolio choice problem where the asset weights reflect the investor's attitude toward risk. Rebalancing is a counter-cyclical strategy that has worked well...