Summary Of Applications Research Articles

Practical Applications of Cryptocurrency Value and 51% Attacks: Evidence from Event Studies

Practical Applications Summary In Cryptocurrency Value and 51% Attacks: Evidence from Event Studies, from the Winter 2020 issue of The Journal of Alternative Investments, authors Savva Shanaev, Arina Shuraeva, Mikhail Vasenin, and Maksim Kuznetsov analyze cryptocurrency altcoins. Their findings suggest that altcoins with certain characteristics tend to be vulnerable to 51% attacks that result in a significant drop in their value on the day of the attack. The characteristic vulnerable altcoin has a low market capitalization and resides on a proof-of-work blockchain with a low hash rate. Furthermore, when the prices of these coins suddenly increase without a clear explanation, it can signal an impending attack. It is notable that the percentage drop in value due to a 51% attack is much larger than the decrease in stock prices that typically occurs when companies experience a data breach or other cybersecurity attack. TOPICS:Currency, risk management, financial crises and financial market history

Practical Applications of Liabilities Matter: Improving Target Date Glidepath Construction through Liability Adaptive Asset Allocation

Practical Applications Summary In Liabilities Matter: Improving Target Date Glidepath Construction through Liability Adaptive Asset Allocation, from the Summer 2019 issue of The Journal of Retirement, author Michael W. Crook (of UBS Global Wealth Management in New York, NY) calls into question the rationale behind the most popular investment funds in today’s employee defined-contribution (DC) plans. Target date funds (TDFs)—which, for example, are held by 75% of participants in DC plans managed by Vanguard—use a preset schedule called a glidepath to reallocate assets from equities to fixed-income securities as a participant’s retirement date approaches. The author finds that this approach does not work as well as the liability-driven investment (LDI) strategy used by pension plans. LDI is more responsive to the needs of participants because it focuses not on participants’ retirement dates, but on how close they are to having enough money on which to retire. It reallocates assets to fixed-income securities as a participant’s plan balance approaches the amount needed to fund all retirement expenses. The author finds that LDI produces better outcomes, is easier to explain to clients, and makes it easier for financial advisors to provide customized financial planning and total wealth management for their clients.

Practical Applications of Trade-Off in Multifactor Smart Beta Investing: Factor Premium and Implementation Cost

<h3>Practical Applications Summary</h3> In <b>Trade-Off in Multifactor Smart Beta Investing: <i>Factor Premium and Implementation Cost</i></b>, from the 2019 Quantitative Special Issue of <b><i>The Journal of Portfolio Management</i>, Feifei Li</b> and <b>Joseph (Yoseop) Shim</b> (both of <b>Research Affiliates</b>) investigate the effects of implementation costs on multifactor portfolio construction. They examine the performance impact of rebalancing multifactor portfolios by looking at portfolio characteristics such as volume, tilt, turnover, and turnover concentration. They find that multifactor portfolios that included all six style factors under consideration—value, low beta, profitability, investment, momentum, and size—yielded the highest information ratios, both before and after trading costs, with a very small negative impact on Sharpe ratios compared with multifactor portfolios composed of fewer factors. The authors also determine that a uniform concentration level of 25% for all factors provides the greatest performance in the presence of implementation costs. Overall, they suggest investors pursue multifactor portfolios composed of the top 25% of stocks in each of the six style factors. <b>TOPICS:</b>Analysis of individual factors/risk premia, portfolio construction, VAR and use of alternative risk measures of trading risk

Practical Applications of The Size Effect Is Alive and Well, and Hiding Behind Calendar Anomalies

<h3>Practical Applications Summary</h3> In <b><i>The Size Effect Is Alive and Well, and Hiding Behind Calendar Anomalies</i></b>, in the September 2019 issue of <b><i>The Journal of Portfolio Management</i></b>, <b>David YechiamAharon</b> (<b>Ono Academic College</b>) and <b>Mahmoud Qadan</b> (<b>University of Haifa</b>) investigate the size-effect asset-pricing anomaly and its possible recurrence during different calendar periods. Using nearly 90 years of monthly, weekly, and daily data to test for the tenacity of the size effect’s small-cap premium, the authors assess whether and to what degree this pricing anomaly occurs within familiar calendar-based anomalies. Recent research has cast doubt on the presence of the size effect. One such critique holds that, according to the efficient market hypothesis, pricing anomalies cannot persist because investors would invariably exploit them, and the anomalies would disappear. In this article, the authors present conflicting evidence, showing that although the size effect does somewhat diminish over time, it still persists—and even thrives in some cases—within well-known calendar anomalies. Even when controlling for such variables as return type (value-weighted versus equal-weighted), sample periods, and regression-estimation type, the authors observe a frequently robust size effect across multiple seasonal anomalies—a finding notably consequential to investment decisions. <b>TOPIC:</b>Factor-based models

Disulfide bridge as a linker in nucleic acids' bioconjugation. Part II: A summary of practical applications.

Disulfide conjugation invariably remains a key tool in research on nucleic acids. This versatile and cost-effective method plays a crucial role in structural studies of DNA and RNA as well as their interactions with other macromolecules in a variety of biological systems. In this article we review applications of disulfide-bridged conjugates of oligonucleotides with other (bio)molecules such as peptides, proteins etc. and present key findings obtained with their help.

Practical Applications of Mature and Not Mature Enough: Comparing Private Equity in Developed and Emerging Markets

<h3>Practical Applications Summary</h3> In <b>Mature and Not Mature Enough: <i>Comparing Private Equity in Developed and Emerging Markets</i></b>, which appeared in the Spring 2019 edition of <b><i>The Journal of Private Equity</i></b>, <b>Darek Klonowski</b> of <b>Brandon University</b> compared the current trends in the private equity industry in both developed and emerging markets. He found that both markets are proceeding along a developmental track from initiation to growth, maturity, and eventual decline. However, developed and emerging markets differ in their phases and, therefore, in their associated challenges in this process. Private equity in developed countries is mature, and is experiencing slowing and even declining returns. In contrast, private equity in most developing countries is still in the growth stage of development but is proceeding along the evolutionary trajectory in unpredictable ways. Both situations present challenges for general partners and limited partners looking to invest in private equity. <b>TOPICS:</b>Private equity, developed, emerging, equity portfolio management

Practical Applications of Implementation Matters: Relaxing Constraints Can Improve the Potential Returns of Factor Strategies

Practical Applications Summary In Implementation Matters: Relaxing Constraints Can Improve the Potential Returns of Factor Strategies, which appeared in the 2019 Quantitative Special Issue of The Journal of Portfolio Management, Jack Davies, Dave Gibbon, Sara Shores, and Josephine Smith (all of BlackRock, Inc.) investigated the differences in the performance of various factor strategy portfolios when investment constraints were placed on investment vehicles. They created several hypothetical portfolios based on momentum and value strategies, and imposed constraints representative of five types of investment vehicles: private funds, UCITS, 130/30 funds, long-only funds, and long-only ETF. The authors found that, in general, the hypothetical implementations with fewer constraints performed better. These findings suggest that investors should pay attention to the real-world restrictions placed on the investment vehicles they choose when pursuing style-factor investment strategies.

Practical Applications of The Alpha, Beta, and Sigma of ESG: Better Beta, Additional Alpha?

<h3>Practical Applications Summary</h3> In <b>The Alpha, Beta, and Sigma of ESG: <i>Better Beta, Additional Alpha?</i></b>, from the September 2019 edition of <b><i>The Journal of Portfolio Management</i></b>, <b>Brian Jacobsen</b>, <b>Wai Lee</b> (both of <b>Wells Fargo Asset Management</b>), and <b>Chao Ma</b> (of <b>Wells Fargo Investment Institute</b>) examine whether the returns of ESG stocks differ from those of non-ESG stocks. They discover that after factor-adjusting the returns and risks of ESG and non-ESG stocks, portfolios of ESG stocks with positive alpha had return-to-risk features comparable to those of portfolios of non-ESG stocks with positive alpha. Portfolios of ESG stocks without statistically significant alpha displayed lower residual volatility than portfolios of non-ESG stocks without statistically significant alpha. The authors suggest that portfolio managers should focus on factor-adjusting their ESG portfolios to match non-ESG portfolios. <b>TOPICS:</b>ESG investing, equity portfolio management, portfolio management/multi-asset allocation

Practical Applications of “Flexicure” Retirement Solutions: A Part of the Answer to the Pension Crisis?

<h3>Practical Applications Summary</h3> In <b>“Flexicure” Retirement Solutions: <i>A Part of the Answer to the Pension Crisis?</i></b>, from the July 2019 issue of <b><i>The Journal of Portfolio Management</i></b>, authors <b>Lionel Martellini</b> (of <b>EDHEC-Risk Institute</b>), <b>Vincent Milhau</b> (of <b>EDHEC-Risk Institute</b>), and <b>John Mulvey</b> (of <b>Princeton University</b>) introduce a range of goal-based retirement investing strategies that allow for both security and flexibility. They describe such strategies as “flexicure,” a portmanteau of “flexible” and “secure.” The authors also describe how combining bonds, annuities, and equities can lead to improvements in the use of existing multi-asset products for retirement investing. They explain how to apply principles of goal-based investing in the retirement context and highlight the benefits of their strategies. <b>TOPICS:</b>Retirement, portfolio construction, quantitative methods

Practical Applications of Returning to the Silk Road: Should Global Portfolios Replace BRICS?

Practical Applications Summary In Returning to the Silk Road: Should Global Portfolios Replace BRICS? from the Spring 2018 issue of The Journal of Index Investing, author Sulaiman Al-Abduljader (of Gulf University for Science and Technology in Hawally, Kuwait) examines the BRICS international economic association—Brazil, Russia, India, China, and South Africa. Studies show that BRICS is not a cohesive economic bloc, but instead a “loose club,” most of whose economic benefits flow to China and India—and research has shown that BRICS ETFs do not provide significant diversification to investors. Therefore, Al-Abduljader proposes an alternative bloc to BRICS: the nations linked by China’s new Belt and Road Initiative, also known as the New Silk Road. He posits that these “SILK” nations could provide better investment opportunities than BRICS, and he tests his hypothesis by forming ETFs from different mixes of SILK countries—including Indonesia, Malaysia, Turkey, the Gulf Cooperation Council, Russia, India, and China. He finds that SILK ETFs outperform BRICS ETFs, are better diversified, and provide better overall diversification in portfolios with developed-market ETFs. Bearing in mind ethical concerns about investing in an economic bloc focused on China, financial professionals should consider SILK or other alternatives to BRICS when constructing portfolios. TOPICS:Exchange-traded funds and applications, portfolio construction, emerging

Practical Applications of Static and Dynamic Tax Diversification of Withdrawals from Multiple Individual Retirement Accounts

<h3>Practical Applications Summary</h3> In <b><i>Static and Dynamic Tax Diversification of Withdrawals from Multiple Individual Retirement Accounts</i></b> from the Fall 2018 issue of <b><i>The Journal of Retirement</i></b>, author <b>Ganlin Xu</b> (of <b>GuidedChoice</b>) constructs a framework to help investment professionals find the most tax-effective way for clients to fund their retirement. He focuses on retirees who have assets in both traditional and Roth IRAs. Financial advisors often recommend a standard sequence of withdrawals from different types of accounts, but the author shows that approach does not take into account market conditions and retirees’ changing tax circumstances. He finds that taking withdrawals first from a traditional IRA saves taxes in an up market, taking withdrawals first from a Roth IRA saves taxes in a down market, and taking simultaneous withdrawals from both a traditional and a Roth IRA saves more taxes overall. He then provides easy-to-use tables showing the tax-optimal withdrawal combinations from traditional and Roth IRAs. In general, single filers save more in taxes by withdrawing more, earlier from Roth IRAs, married joint filers save more by simultaneously withdrawing equal amounts from traditional and Roth IRAs, and married joint filers with high IRA balances save more by taking most of their withdrawals from traditional IRAs. <b>TOPICS:</b>Retirement, statistical methods, legal/regulatory/public policy, wealth management

Practical Applications of A Risk Management System That Works

<h3>Practical Applications Summary</h3> In <b><i>A Risk Management System That Works</i></b>, from the June 2019 issue of <b><i>The Journal of Investing</i></b>, author <b>Robi Elnekave</b> (of <b>Investment Management Institute</b>) describes the importance and impact of a risk management system for portfolio construction. He attempts to define a unifying portfolio framework that resolves current questionable assumptions of portfolio construction and provides critical understanding of the sources of risk. His economic risk model (ERM) is used to predict asset class behavior and to address shortcomings associated with traditional risk models. <b>TOPICS:</b>Risk management, financial crises and financial market history, factor-based models, portfolio construction

Practical Applications of (Il)liquidity Premium in Credit Markets: A Myth?

Practical Applications Summary In (Il)liquidity Premium in Credit Markets: A Myth?, which appeared in the Winter 2019 edition of The Journal of Fixed Income, Scott Richardson and Diogo Palhares (both of AQR Capital Management) investigated the notion of the liquidity premium in corporate bond markets. They conducted several analyses based on multiple measures of liquidity, including the bid–ask spread, average daily trading volumes, issue size, price impact, and frequency of zero trading days. In almost every analysis, they found, illiquidity did not translate into positive risk-adjusted returns that were statistically significantly different from zero. The only relevant liquidity-related bond characteristic the authors discovered was time since issuance: older bonds were associated with higher future credit-excess returns. However, the authors did not interpret this finding as evidence for a liquidity premium, as more direct measures of liquidity had no relation to returns. Rather, the authors suggest that the higher positive returns on older bonds are due to the tendency of investors to avoid those bonds for some other, non-observable reason.

Practical Applications of Fund Fees and Expenses—A Tale of Four Surveys: Trends 2014–2018

Practical Applications Summary In Fund Fees and Expenses—A Tale of Four Surveys: Trends 2014–2018, from the Summer 2019 issue of The Journal of Private Equity, author Julia Corelli (of Pepper Hamilton) highlights key data and conclusions from three recent Private Funds Management (PFM) fees and expenses surveys and a 2015 Pepper Hamilton/Mergermarket survey about the co-investment environment. Corelli then offers suggestions for best practices for the appropriate allocation of fees and expenses among investors, co-investors, and managers.

Practical Applications of A Guide to ESG Portfolio Construction

<h3>Practical Applications Summary</h3> In <b>A Guide to ESG Portfolio Construction</b>, in the April 2019 edition of <b><i>The Journal of Portfolio Management</i>, Michael Branch, Lisa R. Goldberg</b>, and <b>Pete Hand</b>, all of the <b>Aperio Group</b>, present six quantitative environmental (E), social (S), and governance (G) strategies for building or restructuring portfolios to align with investors’ ethical considerations and financial goals. Customizing an ESG portfolio requires trade-offs between investment risk and an investor’s values, whether that means tilting the portfolio toward stocks or sectors that the investor likes, or avoiding ones that it dislikes. In exploring these strategies, the authors propose certain practices and analyze options for ESG portfolio construction that balance risk and the ESG preferences of investors. Acknowledging the challenges faced by investors who want to “do well by doing good,” the authors stress the need for investors to clearly understand their goals and constraints, as well as the complexities intrinsic to trade-offs between risk control and exposure to unwanted securities. The quantitative methods outlined by the authors can lower tracking error but may also increase exposure to unwanted stocks or sectors. To mitigate against such exposure, the authors recommend that investors tap the expanding set of high-quality ESG-scored company data during portfolio construction.

Practical Applications of Model Portfolios

<h3>Practical Applications Summary</h3> In <b>Model Portfolios</b>, which appeared in the Spring 2019 issue of <b><i>The Journal of Wealth Management</i></b>, <b>Debarshi Basu</b> of <b>BlackRock</b>, <b>Michael Gates</b> of <b>BlackRock</b>, <b>Vishal Karir</b> of <b>iHuddl</b>, and <b>Andrew Ang</b> of <b>BlackRock</b> present a three-step framework for developing model portfolios: 1) create a performance benchmark that reflects an investor’s risk tolerance, 2) construct a strategic model portfolio that reflects long-term capital market expectations based on that benchmark, and 3) construct a final tactical model portfolio that rotates the holdings around the strategic model portfolio. The authors suggest that investors use this framework as a repeatable and verifiable process for model portfolio construction. To demonstrate the framework’s usefulness, the authors apply it to two examples: building a strategic model portfolio for multi-asset investing, and building a tactical factor timing portfolio. <b>TOPICS:</b>Portfolio construction, risk management, analysis of individual factors/risk premia, performance measurement

Practical Applications of Leaping Black Swans

<h3>Practical Applications Summary</h3> What is the most effective way to protect against significant market downturns while retaining good upside participation? While many researchers have scrutinized the subject of portfolio insurance (PI), most academic studies on the subject have concluded that options-based strategies are broadly inferior to those that use asset allocation shifts to reduce risk. Yet such studies also have one serious limitation: they tend to focus on protective put options rather than considering other candidates, such as call options. This is the gap that Professors William Trainor (East Tennessee State University), Indudeep Chhachhi, and Christopher Brown (both of Western Kentucky University) seek to fill in <b>Leaping Black Swans</b>, published in the February 2019 Issue of <b><i>The Journal of Investing</i></b>. They find that portfolios comprising 10% call options and 90% conventional bonds outperform alternative portfolio insurance approaches—both options-based and asset allocation–based—in terms of average arithmetic return and a range of risk metrics. <b>TOPICS:</b>Portfolio theory, portfolio construction

Practical Applications of Intelligent Selection of Smart Beta Mutual Funds

<h3>Practical Applications Summary</h3> In <b>Intelligent Selection of Smart Beta Mutual Funds</b>, which appeared in the Summer 2019 issue of <b><i>The Journal of Wealth Management</i>, C. Edward Chang</b> of <b>Missouri State University, Thomas M. Krueger</b> of <b>Texas A&amp;M University-Kingsville</b>, and <b>Cedric Tresor Mbanga</b> of <b>Missouri State University</b> investigated two research questions: 1) whether smart-beta mutual funds (SBFs) have outperformed the market in recent years and 2) whether investors can outperform their peers by limiting the money spent on SBF selection. The authors found that, in general, SBFs have not outperformed the market on a risk-adjusted basis; the increased risk offset the enhanced returns. However, they did find that investing in SBFs with lower expense ratios improved performance. Based on these findings, the authors suggest that investors limit the money spent on adding SBFs to their portfolios. <b>TOPICS:</b>Mutual fund performance, factor-based models, performance measurement

Practical Applications of Bridging the Gap: Adding Factors to Passive and Active Allocations

Practical Applications Summary In Bridging the Gap: Adding Factors to Passive and Active Allocations, which appeared in the 2018 Quantitative Special Issue of The Journal of Portfolio Management, Anil Rao, Raman Aylur Subramanian, and Dimtiris Melas (all of MSCI, Inc.) argue that asset owners should use risk budgeting to determine the optimal mix of active and passive investments. To support this assertion, the authors examine the effects of different possible active, passive, and factor (top-down or bottom-up) allocations when the active managers have high tracking errors. The authors also examine the effects of using a minimum-volatility strategy to de-risk the equity program. Ultimately, they found that the optimal allocations were around 40% passive, 30-40% active, and 20-30% factor allocation, with differences in funding source and risk allocation.

Practical Applications of Using Alternative Research Data in Real-World Portfolios

Practical Applications Summary In Using Alternative Research Data in Real-World Portfolios, Herbert Blank (of Global Finesse LLC), Richard Davis (of Consumer Metrics Institute, Inc.), and Shannon Greene (of the Gabelli School of Business at Fordham University) discuss a potential strategy for investors hoping to incorporate alternative research data into their portfolios. Considering the overwhelming amount of data (currently estimated at over 20 zettabytes in cyberspace), as well as compliance issues associated with data usage, the authors suggest a lexicographic strategy—one based primarily on counting the instances in which a company or its brands appear on the Internet. By bolstering this strategy with a focus on industries where Internet presence is correlated with revenue or earnings, investment managers can use web-scraped data on intangibles such as brand loyalty to enhance their portfolios.