Recent Research: Highlights from September 2012
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"The Most Successful Theory of Economics "
The Journal of Derivatives (Fall 2012)
Ross has called options pricing theory “the most successful theory in all of economics.” Kritzman expands on Ross’s comment to justify this assertion and notes the role of The Journal of Derivatives in disseminating the benefits of this most successful of theories to the world at large.
"Expanded Role of Strategic Asset Allocation: Value Added and Implications"
The Journal of Investing (Fall 2012)
S. Ram Thiagarajan, Jiho Han, and Inna Okounkova
The concept of strategic asset allocation (SAA) has significantly changed over the years. Portfolio managers, consultants, and strategists in charge of SAA use a wider variety of asset classes than just stocks, bonds, and cash (to manage style tilts and control currency exposures) and are dynamic in their choices. This article expands the traditional SAA framework to accommodate seven different and popular sources of additional exposures. By expanding the concept of asset allocation from traditional assets to accommodate additional factors tilts using a Brinson-type analysis, the authors show that expanded SAA explains nearly 90% of the variation in active returns, absorbing some of the value added by active management. Analysis of moderate versus conservatively managed funds shows that the ability to add value from active management is partially dependent on the risk budget provided to the active manager. Importantly, this article shows that the majority of excess return in active management comes from the risk premium due to exposure to additional risk factors that can frequently be absorbed within the expanded SAA framework. This implies that it is important to view strategic asset allocation under the expanded framework as it is more reflective of practice and allows better assessment of the role of active management.
"A Lifecycle Analysis of VC-PE Investments in India: Half Full or Half Empty?"
The Journal of Private Equity (Fall 2012)
Thillai Rajan Annamalai
This article is concerned with the main government policies in equity financing and capital market funding to support entrepreneurial development in Asia. In particular, the author undertakes a comparative case study analysis of four Asian countries: Thailand, Malaysia, Singapore, and Taiwan. The study finds that the government intervention model is successful in Singapore and Taiwan. Although Singapore and Taiwan have clearly defined agencies responsible for carrying out policy implementation, Malaysia and Thailand suffer from having redundant organizations/agencies competing on offering similar innovation financing schemes. The study offers effective innovation financing policy recommendations to support the national economic and social development. The proposed policies can be integrated into national strategies to strengthen the innovation system of the Asian countries.
"Mutual Fund Agency Conflicts"
The Journal of Index Investing (Fall 2012)
John A. Haslem
This study discusses various types of agency conflicts that negatively impact mutual fund shareholder interests. Available agency conflicts can be used by fund advisors to their advantage. The Investment Company Act of 1940, adverse court decisions, and the 2003 fund scandal have caused harm to some shareholders. Also, several major findings of fund agency conflicts with shareholders are discussed.