Economic and Market Outlook
After stronger-than-expected data kicked off the year, the U.S. economy has entered a soft patch over the past
few months. However, we think the prospect of a double dip is low. We expect the economic recovery to be subdued
but sustained, with stocks and other risky assets moving higher on a six- to 12-month horizon, though a
volatile summer trading range appears likely. Therefore we have taken some risk off the table and reduced
the size of some of our active positions. We currently maintain a neutral stance on stocks versus bonds.
A better tone to the economic data in the U.S. and increased quantitative easing by the European Central Bank
(ECB) would be among the signals we would look for to become more aggressive again.
Why Have Estimate Revision Measures not Worked in Recent Years (Journal of Portfolio Management, Spring 2008) An alpha indicator can lose its efficacy if too many investors use it in their trading decisions. Thus, a robust alpha factor model should consider how much of the information in a signal may already be reflected in stock prices.
Does Relaxing the Long-Only Constraint Increase the Downside Risk of Portfolio Alphas? (The Journal of Investing, Spring 2007) In a well-diversified portfolio, relaxing the long-only constraint should not increase the downside risk of portfolio alphas. This is likely even if the underlying stock selection strategy has a bias towards stocks with negatively skewed returns.
Some Insider Sales Are Positive Signals, (Financial Analysts Journal, May/June 2004) Not all insider sales are the same. The percentage of shares owned by insiders is useful for predicting future returns following insider purchases.
Enhanced Equity Indexers: Common Traits and Surprising Differences, (Journal of Investment Management, Fall 2003) All enhanced managers control tracking error by diversifying and controlling factors exposures. Once these variables are controlled, the excess returns of these managers have remarkably low correlations, even among those following seemingly similar strategies.
Overconfidence Bias in International Stock Prices, (Journal of Portfolio Management, Winter 2003) Might investor overconfidence systematically bias stock prices and create investment opportunities across different countries and different cultures? Valuation theory is used to suggest where such biases are most likely to occur.
News, Not Trading Volume, Builds Momentum, (Financial Analysts Journal, March/April 2003) Though recent research regarding trading volume suggests the existence of an exploitable deviation from market efficiency, we show that, after earnings-related news and a stock's growth rate have been controlled for, the interaction between momentum and volume largely disappears.
Behavioral Bias, Valuation, and Active Management, (Financial Analysts Journal, July/August 1999) A probe of the consequences of behavioral biases in the context of valuation theory.
WhitepapersThe Financial and Economic Crises of 2008: How Did We Get Here, and How Might We Get Out? Financial markets are in turmoil, and the list of culpable people and institutions is long. But what fundamental market and economic conditions led to the current situation, and how can we get out of it? QMA Managing Director Ed Keon takes an in-depth look at the events leading up to the financial crisis, and the measures that may help alleviate it.
Turbulent Teens Ahead? What Might the Next Decade Bring for the Economy and the Financial Markets? This white paper, written by QMA managing director Ed Keon, examines market history to attempt to answer tough questions about the decade ahead. What should investors look forward to—or fear? Will the stock market go back to its usual historical return, or should investors expect something higher or lower, and why? Will returns be strong and steady, or will the volatility continue? Is a solid bounceback from the Great Recession likely, or might the U.S. face a double dip? Now that the worst of the financial crisis seems to be over, will we be crisis-free for many years or might another type of financial or economic crisis hit us in the next decade?