Links - Alternative Risk

QUOTE

One thing I’ve learned in recent years, as a general rule, is that the more bullying and carrying on you see someone doing, the less relevant they are to what you’re trying to accomplish as an investor.  -Josh Brown

ALTERNATIVE RISK

In defense of online lending, techcrunch.  "The marketplace industry will be just fine. It is uncertainty – rather than a fundamental flaw in the business model – that is the root cause of the sector’s present turmoil." 

Seven Years of Investing in Peer-to-Peer Lending In 4 Charts, by Me.  

Smart Beta Indexes Are Everywhere Now. ThinkAdvisor.  "…according to FTSE Russell’s 2016 global survey…Seventy-two percent of survey respondents said they had implemented or were actively evaluating smart beta indexes, up from 44% in last year’s survey." 

Dumb Alpha: How to Build an Above Average Hedge Fund, CFA Institute.    "Call me Scrooge if you like, but I do not want to pay anyone 2 plus 20 for the privilege of losing my money."

Tactical Trend-Following: Core Or Alternative? NewFound.   "…trend-following is not meant to replace, but rather complement traditional means of risk management.  And, for those investors that truly understand when and why trend-following should work, there is no reason it cannot be a core holding."  

How Long Will Managed Futures Be in a Drawdown? Attain.    " This isn’t a stock where value investors will come in and support the falling price. It isn’t a currency a central bank will protect. It’s the average performance of dozens of managers trading  models across hundreds of markets. Those markets need to compress and then see volatility expand…to turn the tide."

Low Risk Anomalies? Schneider, Wagner & Zechner.  Q-group.org.  "This paper shows theoretically and empirically that beta- and volatility-based low risk anomalies are driven by return skewness. The empirical patterns concisely match the predictions of our model which generates skewness of stock returns via default risk. With increasing downside risk, the standard capital asset pricing model increasingly overestimates required equity returns relative to firms’ true (skew-adjusted) market risk. Empirically, the profitability of betting against beta/volatility increases with firms’ downside risk. Our results suggest that the returns to betting against beta/volatility do not necessarily pose asset pricing puzzles but rather that such strategies collect premia that compensate for skew risk."   

Hedge Funds Choke In Crises, Swedroe, ETF.com.  "Put simply, just when their hedging benefits were needed most, they not only failed to work, they increased tail risk as all strategies became correlated… the greatest anomaly in finance: Given the very poor performance of hedge funds, why do investors continue to pour money into them?"  

Mispricing Isn’t Going Anywhere.  Swedroe, ETF.com.  " The bottom line is that these findings add further weight to an already-large body of evidence from the field of behavioral finance showing that short-sale costs/constraints impact asset prices, thus allowing these anomalies to persist. Investors can benefit from this knowledge by directly avoiding the purchase of stocks with well-known anomaly characteristics or by investing in long-only funds that screen out such stocks." 

The Problem With ‘Low-Volatility’ Stock Funds, WSJ.  

Online Lender Vouch Financial Shutting Down, WSJ.  " a sharp decline in investor appetite for online lenders’ loans in recent months, plus a Silicon Valley pullback in willingness to commit more funding, has curtailed the growth of some platforms, leading some of the smallest to pursue sales or, in the case of Vouch, to begin the process of winding down."  

The Causal Effect of Limits to Arbitrage on Asset PricingAnomalies, Chu, Hirshleifer, Ma.  "We examine the causal effect of limits to arbitrage on ten well-known asset pricing anomalies using Regulation SHO, which reduced the cost of short selling for a random set of pilot stocks, as a natural experiment."  

Institutional Investors Are Delusional, Meb Faber. "…the institutions are expecting their hedge funds to return 13% per year. Have you lost your @!$%X# mind?"  

Hedge Funds Buckling Under Fee Pressure, LP Apathy. CIO.  

Prequin Special Report: CTAs, June 2016.