http://www.efalken.com/papers/FalkMRPoutline.pptx
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[/align]melveyr: Look at pages 64 and 67.
The Missing Risk Premium: Why Low Volatility Investing Works
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MachineGhost
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The Missing Risk Premium: Why Low Volatility Investing Works
Here is a 120-page PowerPoint presentation if you rather not read the book, The Missing Risk Premium.
http://www.efalken.com/papers/FalkMRPoutline.pptx
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melveyr: Look at pages 64 and 67.
http://www.efalken.com/papers/FalkMRPoutline.pptx
[align=center]
[/align]melveyr: Look at pages 64 and 67.
Last edited by MachineGhost on Thu Apr 25, 2013 6:58 am, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Re: The Missing Risk Premium:
Hmm I might have to get this book!
MG, that's interesting to see how frictional costs have come down. I wonder if we can expect lower gross risk premiums going forward because before investors had to overcome high costs, leading to depressed asset prices. This might throw a wrench in comparing valuation metrics today to the past. Even today, I like the 15/35 bands over tighter bands (or more sophisticated solutions like 1/vol) simply because it reduces frictional costs.
MG, have you read the book "Expected Returns"? I bet you would love it! It is perfect for someone with Bogleheadish tendancies, but is still curious about historical anomalies that might persist going forward.
MG, that's interesting to see how frictional costs have come down. I wonder if we can expect lower gross risk premiums going forward because before investors had to overcome high costs, leading to depressed asset prices. This might throw a wrench in comparing valuation metrics today to the past. Even today, I like the 15/35 bands over tighter bands (or more sophisticated solutions like 1/vol) simply because it reduces frictional costs.
MG, have you read the book "Expected Returns"? I bet you would love it! It is perfect for someone with Bogleheadish tendancies, but is still curious about historical anomalies that might persist going forward.
Last edited by melveyr on Thu Apr 25, 2013 9:57 am, edited 1 time in total.
everything comes from somewhere and everything goes somewhere
Re: The Missing Risk Premium:
Thanks for posting.
Slide 67 is interesting because it matches very closely with a spreadsheet I made years back that withdrew transaction and capital gains tax costs from a portfolio management perspective. It also used Morningstar's tax cost factor in the annual returns for the fund sector being used in the testing. In essence, when you slice and dice a lot and do a bunch of rebalancing you pay a lot more in taxes and fees. The reward gained from the extra risk was largely paid to Uncle Sam!
To make it even worse, if/when taxes go up from the relatively low points they were under Bush, I predicted a very efficient broadly based index fund portfolio would likely beat the more elaborate slice and diced portfolio after-tax.
My conclusion is to use the broadest based index funds you can for tax-efficiency, and rebalance the portfolio as infrequently as you can get away with and still maintain your risk profile.
Slide 67 is interesting because it matches very closely with a spreadsheet I made years back that withdrew transaction and capital gains tax costs from a portfolio management perspective. It also used Morningstar's tax cost factor in the annual returns for the fund sector being used in the testing. In essence, when you slice and dice a lot and do a bunch of rebalancing you pay a lot more in taxes and fees. The reward gained from the extra risk was largely paid to Uncle Sam!
To make it even worse, if/when taxes go up from the relatively low points they were under Bush, I predicted a very efficient broadly based index fund portfolio would likely beat the more elaborate slice and diced portfolio after-tax.
My conclusion is to use the broadest based index funds you can for tax-efficiency, and rebalance the portfolio as infrequently as you can get away with and still maintain your risk profile.
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MachineGhost
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Re: The Missing Risk Premium:
Added to wish list. Sounds yummy!melveyr wrote: MG, have you read the book "Expected Returns"? I bet you would love it! It is perfect for someone with Bogleheadish tendancies, but is still curious about historical anomalies that might persist going forward.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
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Ad Orientem
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Re: The Missing Risk Premium: Why Low Volatility Investing Works
Subscribe and self ping for later reading.
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