Is Inflation Really Gone Forever?

Recent movements in asset prices suggest that markets have forsaken any possibility of an inflation outbreak in the next decade. We believe that view is far too sanguine.

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Tail-Risk Parity: The Quest for a Crash-Proof Portfolio

Michael DePalma By any name—Black Swan, three-standard-deviation event or negative tail event—the risk of unexpected heavy losses is a major concern for investors. The question is how best to protect against these low-probability, high-impact market moves.

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Japan and the Euphoric Volatility Trap

Michael DePalma (pictured) and Arnab Nilim When equity markets are buoyant and optimism abounds, fears of volatility tend to subside. But recent events in Japan remind us that euphoria itself can generate turbulence.

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Beware of the New Systemic Risk

Michael DePalma It felt like there was nowhere to hide from the market declines last Monday, April 15, when stocks, bonds and commodities fell in unison across the world, well before the Boston bombings that day. We believe that this failure of diversification was instigated by increasingly powerful multi-asset funds, many of which use leverage, [...]

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Reducing the Risk from Adding Stock Exposure

Adding other sources of diversification could significantly reduce the risk from increasing stock exposure, our research suggests.

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In Defense of Commodity Futures

Seth J. Masters and Jon Ruff Several prominent pension funds have slashed their commodity futures investments for delivering poor returns with higher volatility than usual, while failing to diversify equity exposures as expected, The Wall Street Journal recently reported. If inflation rises, they may regret it.

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How Much Hedge Fund Exposure Makes Sense?

Our research suggests that a well-diversified allocation to hedge funds might improve portfolio returns, but their greatest benefit is the risk reduction that comes from their low correlation to stocks. Here’s why.

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Hedge Funds: Identifying Alpha and Mitigating Risk

Hedge funds have historically generated higher returns than stocks with less volatility, but they also pose several significant risks that volatility alone doesn’t capture, our research suggests. That makes careful due diligence and diversification of managers crucial. 

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Rooting Out Biases in Hedge-Fund Data

In a recent article, I discussed the conclusions about hedge fund’s historical returns and risk we reached after rooting out biases in the data available. Here’s how we sought to eliminate those biases.

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Hedge Funds: Separating Fact from Hype

It’s easy to understand the allure of hedge funds—and the fear they inspire. After conducting rigorous research aimed at separating fact from hype, we have concluded that hedge funds historically have had an attractive risk/return profile.

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