The Journal of Finance

Why Invest in Emerging Markets? The Role of Conditional Return Asymmetry

Published: 9/14/2016,  Volume: 71,  Issue: 5  |  DOI: 10.1111/jofi.12420  |  Cited by: 178

ERIC GHYSELS, ALBERTO PLAZZI, ROSSEN VALKANOV

We propose a quantile‐based measure of conditional skewness, particularly suitable for handling recalcitrant emerging market (EM) returns. The skewness of international stock market returns varies significantly across countries over time, and persists at long horizons. In EMs, skewness is mostly positive and idiosyncratic, and significantly relates to a country's financial and trade openness and balance of payments. In an international portfolio setting, return asymmetry leads to sizeable certainty‐equivalent gains and increases the weight on emerging countries to about 30%. Investing in EMs seems to be about expectations of a higher upside than downside, consistent with recent theories.

The Time Variation of Risk and Return in the Foreign Exchange and Stock Markets

Published: 6/1989,  Volume: 44,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1989.tb05059.x  |  Cited by: 127

ALBERTO GIOVANNINI, PHILIPPE JORION

This paper attempts to determine whether the fluctuations of conditional first and second moments—which are observed for many assets—are consistent with the Sharpe‐Lintner‐Mossin capital asset pricing model. We test the mean‐variance model under several different assumptions about the time variation of conditional second moments of returns, using weekly data from July 1974 to December 1986, that include returns on a portfolio composed of dollar, Deutsche mark, sterling, and Swiss franc assets, together with the U.S. stock market. The results indicate that estimated conditional variances cannot explain the observed time variation of risk premia.

Goal Setting and Saving in the FinTech Era

Published: 4/11/2024,  Volume: 79,  Issue: 3  |  DOI: 10.1111/jofi.13339  |  Cited by: 33

ANTONIO GARGANO, ALBERTO G. ROSSI

We study the effectiveness of saving goals in increasing individuals' savings using data from a Fintech app. Using a difference‐in‐differences identification strategy that randomly assigns users into a group of beta testers who can set goals and a group of users who cannot, we find that setting goals increases individuals' savings rate. The increased savings within the app do not reduce savings outside the app. Moreover, goal setting helps those individuals previously identified as having the lowest propensity to save. Matching App user survey responses to their behavior highlights the relative merits of monitoring and concreteness channels in explaining our findings.

Sovereign Default, Domestic Banks, and Financial Institutions

Published: 3/17/2014,  Volume: 69,  Issue: 2  |  DOI: 10.1111/jofi.12124  |  Cited by: 472

NICOLA GENNAIOLI, ALBERTO MARTIN, STEFANO ROSSI

We present a model of sovereign debt in which, contrary to conventional wisdom, government defaults are costly because they destroy the balance sheets of domestic banks. In our model, better financial institutions allow banks to be more leveraged, thereby making them more vulnerable to sovereign defaults. Our predictions: government defaults should lead to declines in private credit, and these declines should be larger in countries where financial institutions are more developed and banks hold more government bonds. In these same countries, government defaults should be less likely. Using a large panel of countries, we find evidence consistent with these predictions.

A Multifactor Perspective on Volatility‐Managed Portfolios

Published: 10/27/2024,  Volume: 79,  Issue: 6  |  DOI: 10.1111/jofi.13395  |  Cited by: 37

VICTOR DeMIGUEL, ALBERTO MARTÍN‐UTRERA, RAMAN UPPAL

Moreira and Muir question the existence of a strong risk‐return trade‐off by showing that investors can improve performance by reducing exposure to risk factors when their volatility is high. However, Cederburg et al. show that these strategies fail out‐of‐sample, and Barroso and Detzel show they do not survive transaction costs. We propose a conditional multifactor portfolio that outperforms its unconditional counterpart even out‐of‐sample and net of costs. Moreover, we show that factor risk prices generally decrease with market volatility. Our results demonstrate that the breakdown of the risk‐return trade‐off is more puzzling than previously thought.

VALUATION OF FINANCIAL LEASE CONTRACTS

Published: 6/1976,  Volume: 31,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1976.tb01924.x  |  Cited by: 196

Stewart C. Myers, David A. Dill, Alberto J. Bautista

Decentralized Investment Management: Evidence from the Pension Fund Industry

Published: 5/20/2013,  Volume: 68,  Issue: 3  |  DOI: 10.1111/jofi.12024  |  Cited by: 106

DAVID BLAKE, ALBERTO G. ROSSI, ALLAN TIMMERMANN, IAN TONKS, RUSS WERMERS

Using a unique data set, we document two secular trends in the shift from centralized to decentralized pension fund management over the past few decades. First, across asset classes, sponsors replace generalist balanced managers with better‐performing specialists. Second, within asset classes, funds replace single managers with multiple competing managers following diverse strategies to reduce scale diseconomies as funds grow larger relative to capital markets. Consistent with a model of decentralized management, sponsors implement risk controls that trade off higher anticipated alphas of multiple specialists against the increased difficulty in coordinating their risk‐taking and the greater uncertainty concerning their true skills.