Our research seeks to exploit the most recent advances in financial economics, and connects factor returns to macroeconomic conditions. Our goal is to produce and implement differential portfolio advice.
This note takes a long run, macro view of the recent developments in US equity and bond markets, from the perspective of our models. It argues that investors have priced in a reduction in uncertainty about long run growth and a reduction in trend growth, driven by stagnant growth in TFP and the labor force. For investors who care about long horizon returns and risk, our models point to lower long run equity returns and a continuation of low real bond yields.
This note discusses the implications of the recent increases in interest rates by the U.S. Federal Reserve for long run inflation. According to bond market pricing and our baseline scenario of continued macro uncertainty, higher inflation is unlikely. Investors worried about inflation should look beyond Fed watching, and focus on macro uncertainty and the basics of government finances. In this context, they should monitor the role of US government debt as the dominant reserve asset.
This paper provides a comprehensive framework for offering portfolio advice. This framework takes into account the impact of income risk and investment horizon. Finally, it places factor investing in the context of lifecycle investing.
This paper is relevant because it explicitly ties long term returns to real growth. The paper achieves this end through the linkage between real economic growth and cash flow growth. Finally, the paper suggests that extended periods of below-trend real growth should correspond to lower expected asset returns.
This paper builds on our earlier work linking macroeconomic conditions to asset returns. In this paper we show that a prolonged period of below-trend real economic growth can lead to deterioration in pension funding ratios.
This paper uses the government budget constraint to address the potential for future inflation. The paper shows that under our baseline of low real growth, current inflation levels are also consistent with current levels of government debt and monetary balances. However, application of the government budget constraint also suggests that increased deficits combined with decreased money growth could lead to stagflation.
This note puts recent positive developments in US real GDP growth in the context of factors affecting long-term real growth. It argues that long-term trend growth has declined in the US, driven by declines in Total Factor Productivity and Labor Force growth. Consequently, growth forecasts should be dampened until there are signals that TFP growth and Labor Force growth have improved.
This paper lays a foundation for differential portfolio advice. It shows that when investor attitudes towards risk differ, their factor allocations should also vary. As on a result, this paper provides a framework for developing the investment strategies that are investor-segment specific.
This paper sets out a framework that can be used to develop differential portfolio advice. The paper starts by identifying assets by client segment. It goes on to argue that investment horizon can be a differentiating characteristic across investor segments.
This paper argues that the combination of market bifurcation and new technology are disrupting the asset management business.
This paper shows there are differences in how factor returns are measured. Consequently, factor measurement and portfolio construction are critical to factor-based investing. Thus, to implement a factor-based approach, investors will still need to rely on skilled investment managers.
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