We develop a dynamic model of costly stock short-selling and lending market and obtain implications that simultaneously support many empirical regularities related to short-selling. In our model, investors’ belief disagreement leads to shorting demand, whereby short-sellers pay shorting fees to borrow stocks from lenders. Our main novel results are as follows. Short interest is positively related to shorting fee and predicts stock returns negatively. Higher short-selling risk can be associated with lower stock returns and less short-selling activity. Stock volatility is increased under costly short-selling. An application to GameStop episode yields implications consistent with observed patterns.
{"title":"Dynamic Equilibrium with Costly Short-Selling and Lending Market","authors":"Adem Atmaz, Suleyman Basak, Fangcheng Ruan","doi":"10.2139/ssrn.3516969","DOIUrl":"https://doi.org/10.2139/ssrn.3516969","url":null,"abstract":"\u0000 We develop a dynamic model of costly stock short-selling and lending market and obtain implications that simultaneously support many empirical regularities related to short-selling. In our model, investors’ belief disagreement leads to shorting demand, whereby short-sellers pay shorting fees to borrow stocks from lenders. Our main novel results are as follows. Short interest is positively related to shorting fee and predicts stock returns negatively. Higher short-selling risk can be associated with lower stock returns and less short-selling activity. Stock volatility is increased under costly short-selling. An application to GameStop episode yields implications consistent with observed patterns.","PeriodicalId":377322,"journal":{"name":"Investments eJournal","volume":"186 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-12-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114649586","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The paper studies the volatility and correlation pattern of the fundamental valuation parameters (growth rate and its determinants, discount rate) calculated from widely used valuation ratios using the Gordon formula and relate them to some well-known results from the asset pricing literature. Our results reveal a substantially different picture of the volatility and cyclicality of the implied valuation parameters compared to estimates from econometric models using historical returns. We argue, in the spirit of Campbell (2008), that implied Gordon parameters can be interpreted as empirical proxies for conditional steady-state market fundamentals, which is supported by our findings.
{"title":"Long-Run Implied Market Fundamentals: An Exploration","authors":"H. Zimmermann","doi":"10.2139/ssrn.3501099","DOIUrl":"https://doi.org/10.2139/ssrn.3501099","url":null,"abstract":"The paper studies the volatility and correlation pattern of the fundamental valuation parameters (growth rate and its determinants, discount rate) calculated from widely used valuation ratios using the Gordon formula and relate them to some well-known results from the asset pricing literature. Our results reveal a substantially different picture of the volatility and cyclicality of the implied valuation parameters compared to estimates from econometric models using historical returns. We argue, in the spirit of Campbell (2008), that implied Gordon parameters can be interpreted as empirical proxies for conditional steady-state market fundamentals, which is supported by our findings.","PeriodicalId":377322,"journal":{"name":"Investments eJournal","volume":"73 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-12-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123285024","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Stocks with similar characteristics but different levels of ownership by financial institutions have returns and risk premia that comove very differently with shocks to the risk bearing capacity of financial intermediaries. After accounting for observable stock characteristics, excess returns on more intermediated stocks have higher betas on contemporaneous shocks to intermediary willingness to take risk and are more predictable by state variables that proxy for intermediary health. The empirical evidence suggests that asset pricing models featuring financial intermediaries as marginal investors and frictions that induce changes in intermediary risk bearing capacity are useful in explaining price movements even in asset classes with comparatively low barriers to household participation.
{"title":"Intermediation Frictions in Equity Markets","authors":"B. Seegmiller","doi":"10.2139/ssrn.3586582","DOIUrl":"https://doi.org/10.2139/ssrn.3586582","url":null,"abstract":"Stocks with similar characteristics but different levels of ownership by financial institutions have returns and risk premia that comove very differently with shocks to the risk bearing capacity of financial intermediaries. After accounting for observable stock characteristics, excess returns on more intermediated stocks have higher betas on contemporaneous shocks to intermediary willingness to take risk and are more predictable by state variables that proxy for intermediary health. The empirical evidence suggests that asset pricing models featuring financial intermediaries as marginal investors and frictions that induce changes in intermediary risk bearing capacity are useful in explaining price movements even in asset classes with comparatively low barriers to household participation.","PeriodicalId":377322,"journal":{"name":"Investments eJournal","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133174812","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We show that microstructure biases in the estimation of expected option returns and risk premia are large, in some cases over 50 basis points per day. We propose a new method that corrects for these biases. We then apply our method to real data and produce three main findings. First, the expected returns of straddles and delta-hedged options written on the S&P 500 Index are smaller than previously estimated in the literature. Second, delta-hedged options and straddles written on individual stocks have negative expected returns. Third, the price of individual equity volatility risk is about 45% of the price of market volatility. These findings show that the stylized finding that volatility is not priced in individual stock options is due to microstructure biases.
{"title":"Very Noisy Option Prices and Inferences Regarding Option Returns","authors":"J. Duarte, C. S. Jones, Junbo Wang","doi":"10.2139/ssrn.3488738","DOIUrl":"https://doi.org/10.2139/ssrn.3488738","url":null,"abstract":"We show that microstructure biases in the estimation of expected option returns and risk premia are large, in some cases over 50 basis points per day. We propose a new method that corrects for these biases. We then apply our method to real data and produce three main findings. First, the expected returns of straddles and delta-hedged options written on the S&P 500 Index are smaller than previously estimated in the literature. Second, delta-hedged options and straddles written on individual stocks have negative expected returns. Third, the price of individual equity volatility risk is about 45% of the price of market volatility. These findings show that the stylized finding that volatility is not priced in individual stock options is due to microstructure biases.","PeriodicalId":377322,"journal":{"name":"Investments eJournal","volume":"24 10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125358889","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Hedge funds, on average, outperform other actively managed funds. However, hedge fund managers often use trading strategies that are not used by other managed portfolios, and thus they bear unique risks. In particular, many hedge funds use short selling. I construct an option-based measure of short selling risk as the return spread between the decile of stocks with low option-implied short selling fees and the decile of those with high fees. I find that hedge funds that are significantly exposed to short selling risk outperform low-exposure funds by 0.45% per month on a risk-adjusted basis. However, there is no such relation for mutual funds that invest primarily on the long side. The results highlight that a significant proportion of abnormal performance of hedge funds is compensation for the risk they take on their short positions.
{"title":"Short Selling Risk and Hedge Fund Performance","authors":"Matthew Y. Ma","doi":"10.2139/ssrn.3490038","DOIUrl":"https://doi.org/10.2139/ssrn.3490038","url":null,"abstract":"Hedge funds, on average, outperform other actively managed funds. However, hedge fund managers often use trading strategies that are not used by other managed portfolios, and thus they bear unique risks. In particular, many hedge funds use short selling. I construct an option-based measure of short selling risk as the return spread between the decile of stocks with low option-implied short selling fees and the decile of those with high fees. I find that hedge funds that are significantly exposed to short selling risk outperform low-exposure funds by 0.45% per month on a risk-adjusted basis. However, there is no such relation for mutual funds that invest primarily on the long side. The results highlight that a significant proportion of abnormal performance of hedge funds is compensation for the risk they take on their short positions.","PeriodicalId":377322,"journal":{"name":"Investments eJournal","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-10-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115199576","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We show that a monthly-rebalanced, long-only portfolio of top-decile stocks selected from the NIFTY100 using `off-the-shelf' momentum criteria significantly outperforms the NIFTY100 Index - both in terms of absolute returns (by 10.70% pa) and risk adjusted returns, with a mean turnover of 32.10% per month. We show that momentum persists in the near term but dissipates over time. We demonstrate that our long-only approach has a significant tilt to the momentum factor. We also show that time in the market rather than timing the market is important for momentum investing. The strategy has higher volatility and the occasional momentum crash. The strategy's out performance survives real-world implementation given the rise of discount brokers in India. In the absence of cheap ETFs to get exposure to momentum, the systematic long-only strategy from the most liquid part of the market using `off-the-shelf' criteria provides a practical, executable investment methodology that exposes an investor to momentum in the Indian market.
{"title":"Implementing a Systematic Long-only Momentum Strategy: Evidence From India","authors":"Rajan Raju, A. Chandrasekaran","doi":"10.2139/ssrn.3510433","DOIUrl":"https://doi.org/10.2139/ssrn.3510433","url":null,"abstract":"We show that a monthly-rebalanced, long-only portfolio of top-decile stocks selected from the NIFTY100 using `off-the-shelf' momentum criteria significantly outperforms the NIFTY100 Index - both in terms of absolute returns (by 10.70% pa) and risk adjusted returns, with a mean turnover of 32.10% per month. We show that momentum persists in the near term but dissipates over time. We demonstrate that our long-only approach has a significant tilt to the momentum factor. We also show that time in the market rather than timing the market is important for momentum investing. The strategy has higher volatility and the occasional momentum crash. The strategy's out performance survives real-world implementation given the rise of discount brokers in India. In the absence of cheap ETFs to get exposure to momentum, the systematic long-only strategy from the most liquid part of the market using `off-the-shelf' criteria provides a practical, executable investment methodology that exposes an investor to momentum in the Indian market.","PeriodicalId":377322,"journal":{"name":"Investments eJournal","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-10-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131277460","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We start by documenting trend-following (or time series momentum) in government bond, currency and equity index (all developed countries) at the asset class level, and at the multi-asset level, using 29 liquid instruments, with lookback periods ranging from 1 to 60 months. A typical multi-asset trend-following strategy delivers strong returns for short to medium term lookback periods. I document that trends spill over to other asset classes: past trends of assets can help to build investment strategies using other related assets. This spillover effect works better when using longer lookback periods than the sweet spot for trend-following.
{"title":"Trend-Following and Spillover Effects","authors":"P. Declerck","doi":"10.2139/ssrn.3473657","DOIUrl":"https://doi.org/10.2139/ssrn.3473657","url":null,"abstract":"We start by documenting trend-following (or time series momentum) in government bond, currency and equity index (all developed countries) at the asset class level, and at the multi-asset level, using 29 liquid instruments, with lookback periods ranging from 1 to 60 months. A typical multi-asset trend-following strategy delivers strong returns for short to medium term lookback periods. I document that trends spill over to other asset classes: past trends of assets can help to build investment strategies using other related assets. This spillover effect works better when using longer lookback periods than the sweet spot for trend-following.","PeriodicalId":377322,"journal":{"name":"Investments eJournal","volume":"147 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-10-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132930990","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A central but generally neglected objective of federal regulation of pension and welfare benefit plans was to improve overall economic efficiency by providing workers with accessible and reliable information on which to base their career and financial planning. Simple dissemination of plan terms and financial data (full disclosure) cannot achieve that objective because few workers are equipped with the skills needed to evaluate the costs and benefits of complex retirement saving or health care programs. For that reason ERISA, the Employee Retirement Income Security Act of 1974, requires curated disclosure of plan-related information: it must be presented a format that is both understandable to the average plan participant and sufficiently complete to empower workers to make best use of the program. The length and complexity of most employee benefit plans creates tension between understandability and completeness, calling for tradeoffs to achieve optimal disclosure. As implemented ERISA’s understandability standard has been jettisoned by plan sponsors seeking protection from liability for failing to tell workers enough. Required plan summaries became unreadable, but plan sponsors could get away with that, both because there was no administrative or judicial enforcement of the understandability standard, and because they could tout the advantages of their benefit plans to workers by means of unregulated informal communications. The demise of understandability is only half the story. The federal courts have also degraded the reliability of mandatory disclosures by finding that the obligation to provide reasonably accurate and complete information is enforceable only in a suit for appropriate equitable relief. In consequence, disclosure defects are often presented as estoppel claims, and the necessary showing of individual detrimental reliance translates into widespread under-enforcement of the reliability standard. This article explores the policy dimension of ERISA disclosure law and chronicles the decay of the equilibrium Congress envisioned. From the perspective of workers it is a saga of disappointment, disillusionment, and defeat. The new balance may serve the interests of federal courts (reduced caseload) and some employers (increased flexibility), but it also likely contributes to the increasing standardization of employee benefit plans, decreasing their utility as instruments of workforce management. Far worse, it abandons ERISA’s goal of improved economic performance through better-informed career and financial planning.
{"title":"Unbelievable: ERISA’s Broken Promise (ver. 3.3)","authors":"Peter J. Wiedenbeck","doi":"10.2139/SSRN.3430686","DOIUrl":"https://doi.org/10.2139/SSRN.3430686","url":null,"abstract":"A central but generally neglected objective of federal regulation of pension and welfare benefit plans was to improve overall economic efficiency by providing workers with accessible and reliable information on which to base their career and financial planning. Simple dissemination of plan terms and financial data (full disclosure) cannot achieve that objective because few workers are equipped with the skills needed to evaluate the costs and benefits of complex retirement saving or health care programs. For that reason ERISA, the Employee Retirement Income Security Act of 1974, requires curated disclosure of plan-related information: it must be presented a format that is both understandable to the average plan participant and sufficiently complete to empower workers to make best use of the program. The length and complexity of most employee benefit plans creates tension between understandability and completeness, calling for tradeoffs to achieve optimal disclosure. \u0000 \u0000As implemented ERISA’s understandability standard has been jettisoned by plan sponsors seeking protection from liability for failing to tell workers enough. Required plan summaries became unreadable, but plan sponsors could get away with that, both because there was no administrative or judicial enforcement of the understandability standard, and because they could tout the advantages of their benefit plans to workers by means of unregulated informal communications. The demise of understandability is only half the story. The federal courts have also degraded the reliability of mandatory disclosures by finding that the obligation to provide reasonably accurate and complete information is enforceable only in a suit for appropriate equitable relief. In consequence, disclosure defects are often presented as estoppel claims, and the necessary showing of individual detrimental reliance translates into widespread under-enforcement of the reliability standard. \u0000 \u0000This article explores the policy dimension of ERISA disclosure law and chronicles the decay of the equilibrium Congress envisioned. From the perspective of workers it is a saga of disappointment, disillusionment, and defeat. The new balance may serve the interests of federal courts (reduced caseload) and some employers (increased flexibility), but it also likely contributes to the increasing standardization of employee benefit plans, decreasing their utility as instruments of workforce management. Far worse, it abandons ERISA’s goal of improved economic performance through better-informed career and financial planning.","PeriodicalId":377322,"journal":{"name":"Investments eJournal","volume":"52 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127605746","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Emmanuel Schizas, Grigory McKain, B. Zhang, Kieran Garvey, Altantsetseg Ganbold, Hatim Hussain, Pankajesh Kumar, Eva Huang, Shaoxin Wang, Nikos Yerolemou
The first global benchmark study of the RegTech sector by the Cambridge Centre for Alternative Finance, conducted with the support of EY Japan, is based on a survey of 111 firms as well as regulators and industry experts. We estimate that the global RegTech industry generated $5 billion in revenue in 2018, and had raised $9.7 billion in external funding as of early 2019. The financial services sector dominates demand for RegTech services but most vendors now target non-financial sectors, and this share is set to grow. The RegTech market can be broken down into five distinct segments: 1. Profiling and due diligence 2. Dynamic compliance 3. Reporting and dashboards 4. Risk analytics 5. Market monitoring. The sector underwent a period of rapid growth between 2014 and 2018, but is now growing mostly through incumbent expansion rather than market entry. Long sales cycles, complex IT planning within client institutions, difficulties in establishing trust and high levels of competition have left some vendors struggling to gain traction. A handful of larger vendors thus dominate most funding and commercial activity.
剑桥另类金融中心(Cambridge Centre for Alternative Finance)在安永日本(EY Japan)的支持下，对监管科技行业进行了首次全球基准研究，该研究基于对111家公司、监管机构和行业专家的调查。我们估计，全球监管科技行业在2018年创造了50亿美元的收入，截至2019年初，已经筹集了97亿美元的外部资金。金融服务行业主导着对RegTech服务的需求，但大多数供应商现在瞄准非金融行业，这一份额将会增长。RegTech市场可以分为五个不同的部分:1。分析和尽职调查2。动态遵从性3。报告和仪表板风险分析市场监控。该行业在2014年至2018年期间经历了一段快速增长期，但现在的增长主要是通过现有的扩张而不是市场进入。漫长的销售周期、客户机构内部复杂的IT规划、建立信任的困难以及激烈的竞争使得一些供应商难以获得牵引力。因此，少数几个较大的供应商主导了大多数融资和商业活动。
{"title":"The Global RegTech Industry Benchmark Report","authors":"Emmanuel Schizas, Grigory McKain, B. Zhang, Kieran Garvey, Altantsetseg Ganbold, Hatim Hussain, Pankajesh Kumar, Eva Huang, Shaoxin Wang, Nikos Yerolemou","doi":"10.2139/ssrn.3560811","DOIUrl":"https://doi.org/10.2139/ssrn.3560811","url":null,"abstract":"The first global benchmark study of the RegTech sector by the Cambridge Centre for Alternative Finance, conducted with the support of EY Japan, is based on a survey of 111 firms as well as regulators and industry experts. We estimate that the global RegTech industry generated $5 billion in revenue in 2018, and had raised $9.7 billion in external funding as of early 2019. The financial services sector dominates demand for RegTech services but most vendors now target non-financial sectors, and this share is set to grow. \u0000 \u0000The RegTech market can be broken down into five distinct segments: 1. Profiling and due diligence 2. Dynamic compliance 3. Reporting and dashboards 4. Risk analytics 5. Market monitoring. \u0000 \u0000The sector underwent a period of rapid growth between 2014 and 2018, but is now growing mostly through incumbent expansion rather than market entry. Long sales cycles, complex IT planning within client institutions, difficulties in establishing trust and high levels of competition have left some vendors struggling to gain traction. A handful of larger vendors thus dominate most funding and commercial activity.","PeriodicalId":377322,"journal":{"name":"Investments eJournal","volume":"14 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121900280","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A. Clare, James Seaton, Peter N. Smith, Steve Thomas
A significant part of the development in pension provision in many countries is the emergence of ‘Target Date Funds’ or TDFs. In this paper we examine the proposition of de-risking through life and the guidance offered by TDFs in the decumulation phase following retirement. We investigate the withdrawal experience associated with Glidepath Investing in the US since 1925 for conventional bond-equity portfolios. We find one very powerful conclusion: that smoothing the returns on individual assets by simple absolute momentum or trend following techniques is a potent tool to enhance withdrawal rates, often by as much as 50% per annum! And, perhaps of even greater social relevance is that it removes the ‘left-tail’ of unfortunate withdrawal rate experiences, i.e. the bad luck of a poor sequence of returns early in decumulation. We show that diversifying assets over time by switching between an asset and cash in a systematic way is potentially more important for the retirement income experience than diversifying one’s portfolio across asset classes. We also show that Glidepath investing is only sensible within a few years of the target date. This finding provides succour to enthusiasts for target date investing in the face of the growing hostility in the literature.
{"title":"Absolute Momentum, Sustainable Withdrawal Rates and Glidepath Investing in US Retirement Portfolios From 1925","authors":"A. Clare, James Seaton, Peter N. Smith, Steve Thomas","doi":"10.2139/ssrn.3365338","DOIUrl":"https://doi.org/10.2139/ssrn.3365338","url":null,"abstract":"A significant part of the development in pension provision in many countries is the emergence of ‘Target Date Funds’ or TDFs. In this paper we examine the proposition of de-risking through life and the guidance offered by TDFs in the decumulation phase following retirement. We investigate the withdrawal experience associated with Glidepath Investing in the US since 1925 for conventional bond-equity portfolios. We find one very powerful conclusion: that smoothing the returns on individual assets by simple absolute momentum or trend following techniques is a potent tool to enhance withdrawal rates, often by as much as 50% per annum! And, perhaps of even greater social relevance is that it removes the ‘left-tail’ of unfortunate withdrawal rate experiences, i.e. the bad luck of a poor sequence of returns early in decumulation. We show that diversifying assets over time by switching between an asset and cash in a systematic way is potentially more important for the retirement income experience than diversifying one’s portfolio across asset classes. We also show that Glidepath investing is only sensible within a few years of the target date. This finding provides succour to enthusiasts for target date investing in the face of the growing hostility in the literature.","PeriodicalId":377322,"journal":{"name":"Investments eJournal","volume":"342 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-03-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115673211","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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