Policy portfolios are a fixture of institutional investment management, but they may not serve the purposes for which they are intended. A policy portfolio serves primarily as an expression of an investor's return and risk preferences. Secondarily, it serves as a benchmark for determining the...

Investors have long relied on scenario analysis as an alternative to mean-variance analysis to help them construct portfolios. Even though mean-variance analysis accounts for all potential scenarios, many investors find it difficult to implement because it requires them to specify statistical...

Investors have long debated what fraction, if any, of their portfolio's currency exposure they should hedge. Although the answers cover a broad range, often with dubious rationale, most informed investors agree that the solution should be based on mean-variance optimization, deployed either to...

Financial analysts assume that the reliability of predictions derived from regression analysis improves with sample size. This is generally true because larger samples tend to produce less noisy results than smaller samples. But this is not always the case. Some observations are more relevant...

The authors introduce a new index of the business cycle that uses the Mahalanobis distance to measure the statistical similarity of current economic conditions to past episodes of recession and robust growth. Their index has several important features that distinguish it from the Conference...

Investors have traditionally relied on mean-variance analysis to determine a portfolio’s optimal asset mix, but they have struggled to incorporate private equity into this framework because they do not know how to estimate its risk. The observed volatility of private equity returns is...

Investors rely on the stock-bond correlation for a variety of tasks, such as forming optimal portfolios, designing hedging strategies, and assessing risk. Most investors estimate the stock-bond correlation simply by extrapolating the historical correlation of monthly returns and assume that this...