How Volatility and Turnover Affect Return Reversals
Higher volatility is associated with faster, initially stronger reversals, while lower turnover is associated with more persistent, ultimately stronger reversals
Band of Brothers Attacking Short Sellers: Game Stop for Hedge Funds
Advisors and investors should be aware that fund families that invest systematically have found ways to incorporate the research findings on the limits to arbitrage and the evolving changes we have discussed to improve returns over those of a pure index replication strategy. It seems likely this will become increasingly important, as the markets have become less liquid, increasing the limits to arbitrage and allowing for more overpricing.
Crowded Trades Increase Crash Risks
Crowded equity positions in anomalies remain and have significant impacts in terms of risk and return dynamics.
Diseconomies of Scale in Investing
While the research shows that fund managers are skilled, skill doesn’t translate into outperformance due to the diseconomies of scale.
Asset Allocation and Private Market (i.e. illiquid) Investing
Allocations to illiquid assets have become increasingly popular requiring asset managers to consider portfolio-wide liquidity characteristics. Although determining the price of illiquidity is a challenge for investors, the construction of a portfolio that includes liquidity constraints can be even more daunting. How do we optimize asset allocation with liquidity as a significant constraint on the portfolio?
The Illiquidity Discount is an Opportunity Cost
Private investment opportunities seem to have been filling investors' portfolios. These investment vehicles come with a discount to the assets value to pay investors for taking on illiquidity risk. Readers of this article are treated to the development of a theory and a practical model that quantifies the illiquidity discount.
The Vanishing Illiquidity Premium
Liquidity—the ability to buy and sell significant quantities of a given asset quickly, at low cost, and without a major price concession—is valuable to investors. [...]