We introduce the notion of a patience premium, which is based on the concept of ambiguity aversion and is an ambiguity premium. We identify three reasons for the existence of the patience premium: Certainty preferences: perceived confidence in the expected performance; Comparison with peers:...

A popular strategy to assess mutual funds is to look at past returns and rank funds based on their risk and return characteristics. This simple approach has its advantages but it is uni-dimensional in nature and misses important characteristics that may impact future returns. We propose...

We provide evidence that speculative capital of hedge funds is a key determinant for the profitability of optimal carry and momentum strategies in futures markets across asset classes. We construct optimal carry and momentum portfolios from the perspective of a utility maximizing risk averse...

Preqin and Pitchbook data are classified and analyzed to derive a coherent set of risk-return assumptions to combine with Listed liquid assets in a traditional mean-variance framework. We find expected returns of 11%-12% for PE and 8% for PD, PC detailed per subclass. Risk is decomposed in Class...

These days it's become convention (reinforced by the media's treatment of wealth) to assess our net worth by tallying up the market value of our financial assets, even though it's more natural and useful to think of our wealth as a stream of dollars over time given the nature of our income and...

The longest bull market in US stock market history is over. Uncertainty over the public health and economic impact of the coronavirus pandemic will keep markets extremely volatile, making it likely we'll touch a wide range of price levels in the months ahead. Amidst such uncertainty, it's a...

Following the Global Settlement, analysts extensively use a top pick designation to highlight their highest conviction best ideas. Such a designation enables analysts to provide greater granularity of information, but it can potentially be influenced by conflicts of interest. Examining a...

Factor cyclicality can be understood in the context of factor sensitivity to aggregate cash-flow news. Factors exhibit different sensitivities to macroeconomic risk, and this heterogeneity can be exploited to motivate dynamic rotation strategies among five commonly established factors: size,...

We measure a stock's exposure to fire sale risk through its ownership links to equity mutual funds that experience outflows during periods of systematic outflows from the fund industry. We find that more exposed stocks earn higher average returns: a portfolio that buys (shorts) stocks with the...

The neoclassical growth model is extended to include costly intermediated borrowing and lending between households. This is an important extension as substantial resources are used to intermediate the large amount of borrowing and lending between households. In 2007, in the United States, the...