Dear Academic Insights on Investing friend,
Our book is now available to order here ! Just in time for Christmas!!
Below you can read “Why we wrote this book?”
Smart(er) Investing. How Academic Insights Propel the Savvy Investor
By Elisabetta Basilico, PhD, CFA and Tommi Johnsen, PhD
“Academic research is amazing and incredibly useful for helping us better understand the complex world in which we live. In fact, academic research has literally rewired my brain at times. However, research isn’t perfect and the search for truth is messy. Data-mining. Overfitting. P-hacking”. (Wesley Gray, PhD| October 13, 2017, Alpha Architect blog)
We agree.
Rigorous academic research is the foundation of successful investing practices and outcomes.
But keeping up with the dozens of peer reviewed journals and several hundreds of articles published in these journals every year is no easy task!
This is why we conceptualized this book and our blog (academicinsigtsoninvesting.com) with the aim to democratize research, make it transparent, understandable and separate out the good research from the bad.
We have taken the following path: first we identified a number of cutting-edge investment ideas that have taken hold in investment practice, those that have grown in $AUM and are expected to grow substantially in the near future. Here they are:
Index Investing
Factor Investing
Multi-Asset Investing
Tail Risk Hedging
Responsible Investing
Equity and Rewards Based Crowdfunding
Big Data and Artificial Intelligence Based Investing
Cryptocurrencies
Once identified, we surveyed the academic literature for the articles that represent the “best in class”.
While we surveyed articles published over the last 10 years or so, the articles themselves tested the ideas using decades, decades and decades of data. In other words, the ideas were evaluated over very long time periods that included all sorts of economic, political and market events.
Our aim is to please the professional investor, the ambitious practitioner, and the curious students of investment by clarifying what research is relevant, why it’s relevant and give practical examples to implement in portfolios. We hope the practical “tips” are the icing on the cake for each of the chapters.
Following are the abstracts for a few of the main chapters.
In the Index Investing chapter, we review an article that challenges the anti-passive movement by discussing the research that documents the impact of index investing on active management: it makes it better! For example, active funds have a higher active share and lower shareholder costs in countries where indexers are relatively more prevalent and are less costly to boot.
In the Multi- Asset Investing chapter, we review a compilation of more than twenty papers on various aspects of asset allocation including the definition of an asset class; common pitfalls of mean-variance models; a new measure of risk that will determine the probability of maximum drawdowns on a continuous basis; and approaches to rebalancing the multi-asset portfolio.
In a world where alpha has proven to be scarce, investment professionals believe that AI-based investing will be the next wave of financial innovation. In the Big Data and AI chapter, we review the research on whether new and novel datasets and statistical techniques create value and add alpha. Specifically, we focus on sentiment related datasets covering news, social media, accounting textual information and macro-economic text.
…Plus three bonus chapters:
What Constitutes Good Investment Research
A Roadmap to Reading an Academic Article
Women in Finance and their underrepresentation
The first two because we are academics and the third because as women and as finance professionals, we are in a unique position to help challenge the status quo.
Happy Reading and Happy Holidays!
Elisabetta & Tommi
PS: if you read the book, let us know what you think!