U.S. active equity mutual funds have experienced net outflows since around 2006. The AUM-weighted performance remains similar over time, but equal-weighted performance (which emphasizes small AUM active funds) has deteriorated. Inflows/outflows contribute to the over/under performance of...

Recent literature indicates that a liquidity investment style – the process of investing in relatively less liquid stocks within the liquid universe of publicly traded stocks – has led to excess returns relative to size and value. While previously documented at the security level, we examine...

What is the relative importance of asset allocation policy versus active portfolio management in explaining variability in performance? Considerable confusion surrounds both time-series and cross-sectional regressions and the importance of asset allocation. Cross-sectional regressions naturally...

The authors modeled the non-normal returns of multiple asset classes by using a multivariate truncated Lévy flight distribution and incorporating non-normal returns into the mean-conditional value at risk (M-CVaR) optimization framework. In a series of controlled optimizations, they found that...

Diversification is widely viewed as the “only free lunch” of finance. Unbeknownst to the free lunch crowd, skewness is typically positive for individual stocks and negative for diversified portfolios and thus diversification is not free. This undesirable move from positive to negative...