The First Academic Paper with a Shotgun Picture in it

/The First Academic Paper with a Shotgun Picture in it

The First Academic Paper with a Shotgun Picture in it

By | 2017-08-18T16:55:36+00:00 July 2nd, 2015|Tactical Asset Allocation Research|Comments Off on The First Academic Paper with a Shotgun Picture in it
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(Last Updated On: August 18, 2017)

Here is one of the figures in a Journal of Finance paper published in 2013 by N. Garleanu and L Pedersen.

The figure depicts various portfolio optimizations under different assumptions and then has a visualization equivalent with hockey players, skeet shooters, and missile systems.

I’m not sure how many readers follow hard-core academic publications, but this is pretty wild. I’ve read 1000’s of academic finance papers and never seen anything like this.

I’m a fan.


Dynamic Trading with Predictable Returns and Transaction Costs

This paper derives in closed form the optimal dynamic portfolio policy when trading is costly and security returns are predictable by signals with different mean reversion speeds. The optimal updated portfolio is a linear combination of the existing portfolio, the optimal current portfolio absent trading costs, and the optimal portfolio based on future expected returns. Predictors with slower mean reversion (alpha decay) get more weight since they lead to a favorable positioning both now and in the future. We implement the optimal policy for commodity futures and show that the resulting portfolio has superior returns net of trading costs relative to more naive benchmarks. Finally, we derive natural equilibrium implications, including that demand shocks with faster mean reversion command a higher return premium.


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About the Author:

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes,, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.