Oil prices should remain low, likely in the $30–$40 a barrel range, through summer 2017. Investors seeking greater diversification and yield than offered by traditional asset classes should consider commodities, albeit those not heavily tilted toward oil....
1. Abandoning the assumption of a positive risk-free rate alters our conceptions of money, monetary policy, and investment risk. Managing volatility, the traditional measure of risk
Forecasting the weather or stock prices is a mostly mundane matter, but the unforeseen can exact a heavy toll. For investors, economic data improve the precision of market forecasts....
Product proliferation in smart beta often coincides with wonderful historical returns. These returns can be an alpha mirage caused by rising valuations. Investors need to be mindful of this to avoid performance chasing, a wealth-destroying activity....
The discrepancy between official headline inflation and its underlying components is perplexing, and its implications for monetary policy (i.e., accommodative) suggest inflated asset prices and lower forward-looking returns....
Four market conditions now parallel the extremes last experienced in December 1998, setting up 1999 as the first year in a decade of outperformance by inflation-fighting and diversifying assets. Now is the time to rotate into these unloved asset classes....
Recently enacted NIRP in several major developed economies means not only lower current yields but also lower future expected returns—and thus lower accumulated wealth—for investors investing in these markets....
The Fed’s inflation model relies heavily on consumer and market-based expectations, both notoriously poor predictors. We propose an alternative bottom-up approach that analyzes the components of CPI, and arrive at a forecast very close to the Fed’s target rate....
According to Hsu and Cornell, active fundamental managers, as agents of the end investor, drive asset prices through the discount rate used in their asset pricing models. The model itself, as a means to estimate the rate, then becomes a determinant of expected returns....
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