Academic Finance Research and Insights

Private Equity May Not Be the Diversifier We Think (Due to Volatility Laundering), But Private Credit Could Be

By |June 14th, 2024|Private Equity, Research Insights, Larry Swedroe, Other Insights|

Volatility laundering causes the risk-adjusted returns and the diversification benefits of private equity to be significantly overstated. However, the problem of volatility laundering is not a problem for all private investments, specifically not for high-quality, floating rate, private credit.    

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The Halo Effect Drives Demand for Sustainable and Impact Investments

By |June 7th, 2024|ESG, Larry Swedroe, Research Insights, Other Insights|

Both investment motives and investment experience are important determinants for investors’ ability to assess (impact) investment opportunities. While investor preference can justify accepting a lower return as the cost of expressing their values, the halo effect should not play a role in making that assessment—both economic theory and empirical evidence should lead investors to expect lower returns on sustainable investments.

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Quality, Factor Momentum, and the Cross-Section of Returns

By |May 31st, 2024|Quality Investing, Research Insights, Factor Investing|

There is strong empirical evidence demonstrating that momentum (both cross-sectional and time-series) provides information on the cross-section of returns of many risk assets and has generated alpha relative to existing asset pricing models. Ma, Yang, and Ye’s findings provide another test of both robustness and pervasiveness, increasing our confidence that the findings of momentum in asset prices are not a result of data mining.

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Does Diversity add value to asset management?

By |May 28th, 2024|ESG, Research Insights, Basilico and Johnsen, Academic Research Insight, Behavioral Finance, Corporate Governance|

The research literature on diversity in asset management, while promising, is limited with respect to the breadth of the evidence produced to date. We don't really understand the broad-based benefits of diversity nor how diversity delivers value in asset management. How does it really work? Is it the university, the college major, gender, race, the work experience? That is where this study comes into play. The authors propose a unifying concept called homophily to analyze the impact of diversity in asset management using hedge funds as their laboratory. Sociology describes homophily as groups of people that share common characteristics such as beliefs, values, education, and so on. In a team setting those characteristics make communication and relationship formation easier. Further, a large body of research in sociology specifically documents the presence of homophily with respect to education, occupation, gender, and race. Luckily, management teams within hedge funds can be characterized by just those dimensions.

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