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Does Past Performance Matter in Investment Manager Selection

Cornell, Hsu, and Nanigian discover that the investment manager selection methodology commonly employed by industry practitioners turns out, in fact, to be a detriment to performance. The recent track record of an active manager contains no useful information about her future outperformance. In fact, recent performance is often a contrarian indicator! Asset owners, who select […]

Smart Beta, “Smarter” Flow

Cao, Hsu, Xiao, and Zhan examine the impact of smart beta equity exchange-traded funds (ETFs) on how investors evaluate active mutual fund performance. They find that when smart beta ETFs are actively traded, mutual fund flows become “smarter”, with a higher sensitivity to alphas from multi-factor models. The dominance of the CAPM alpha weakens and […]

Quantitative Easing—Beijing Style

Contrary to the belief of many casual central bank watchers, there is a striking parallel between China’s quantitative easing and that of Japan, U.S. and Europe. Just as the Fed expands its balance sheet to bankroll the U.S. government, so does the Chinese central bank – through its state-owned banking satellites – expand its balance sheet to lend to SOEs to promote employment and growth.

The Promise of Smart Beta

Beyond the debate over definitions, smart beta strategies can be the prime alternative to active management for our times just as cap-weighted index funds served so admirably in that role for the past four decades.