analyst forecasting errors additional evidence analyst forecasting errors are approximately as large as dreman and berry 1995 documented and an optimistic bias is evident for all years from 1985 through 1996 in contrast to their findings i show that analyst forecasting errors and bias have decreased over time moreover the optimistic bias in quarterly forecasts was absent for sp 2 firms with comparatively large amounts of market capitalization absolute value of earnings forecast and analyst following and 3 firms in certain industries

tax management loss harvesting and hifo accounting virtually all companies and individuals are faced with the management of taxable assets to manage these assets efficiently investors need to be aware of the impact of taxes on investment returns in the study we report in this article we quantified the benefits of loss harvesting and highest in first out hifo accounting by using monte carlo simulations and investigated the robustness of these strategies in various markets and with various cash flows and tax rates we concluded that a market with high stock specific risk low average return and high dividend yield provides more opportunities to harvest losses in addition a steady stream of contributions refreshes a portfolio and allows the benefits of loss harvesting to remain strong over time conversely withdrawals reduce the advantages of realizing losses our findings show that no matter what market environment occurs in the future managing a portfolio in a tax efficient manner gives substantially better after tax performance than a simple i

testing for the long run relationship between nominal interest rates and inflation using cointegration techniques 1989 testing for the long run relationship between nominal interest rates and inflation using cointegration techniques applied economics vol 21 no 4 pp 439 447

organizational identities and the hazard of change industrial and corporate change volume 15 number 5 pp 755 784 doi 10 1093 icc dtl020 advance access published august 8 2006 organizational identities and the hazard of change michael t hannan james n baron greta hsu and ozgecan kocak we examine how the life chances and financial performance of nascent high technology firms were affected by two kinds of organizational changes altering founders blueprints for the employment relation and replacing a founder chief executive officer ceo by an outsider we argue that both events destabilize organizations but that changes in employment blueprints are tied more tightly to the organization s identity and thus are more destabilizing we analyze three dimensions of organizational performance among a sample of young high technology companies in california s silicon valley survival versus failure launching an initial public offering ipo and changes in financial valuations among organi zations that underwent an ipo as predicted changing the employment blueprint increased the hazard of failure and diminished growth in market value appoint ing an outsider as ceo did not affect the hazard of failure appreciably but did depress the rate of growth in market capitalization the implications of these results for ecological and institutional perspectives on organizations are discussed 1 imprinting identity and disruptive change the proposition advanced by hannan and freeman 1984 that altering an organiza tion s core features is hazardous has been the focus of much theorizing and empirical research barnett and carroll 1995 carroll and hannan 2000 this research has generally emphasized one side of the inertia story the disruption entailed in reorgan izing routines and architectures the other side of the story that changes in core fea tures might be viewed as violations of deep seated taken for granted expectations by key organizational constituents has received less attention this article attempts to redress the balance by developing an identity based notion of an organization s core and testing the proposition that changing such core features is especially destabilizing notions of identity played an important part in shaping the original inertia argu ment for instance hannan and freeman 1984 155 156 motivated their argument with the example of the university although some features such as textbooks con stantly change in an adaptive way changing a curriculum from liberal arts to voca tional training would be extraordinarily difficult the curriculum is difficult to the author 2006 published by oxford university press on behalf of associazione icc all rights reserved

the long run relationship between nominal interest rates and inflation the fisher equation revisited stable url http links jstor org sici sici 0022 2879 28199602 2928 3a1 3c102 3atlrbni 3e2 0 co 3b2 2journal of money credit and banking is currently published by ohio state university press your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals ohio press html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgmon aug 27 13 58 08 2007

having your cake and eating it too the before and after tax efficiencies of an extended equity mandate this article shows that extended mandates are especially effective for investors subject to taxes not only is the portfolio more efficiently positioned from a before tax perspective but it also offers significant after tax benefits from both increased loss harvesting and tax arbitrage between tax rates on long and short positions

collective learning tacit knowledge and regional innovative capacity lawson c and lorenz e 1999 collective learning tacit knowledge and regional innovative capacity reg studies 33 305 317 the paper reviews key ideas in the firm capabilities literature and shows how they can be usefully extended to develop a conception of collective learning among regionally clustered enterprises the paper also explores the relationship between codifiable and tacit knowledge in the innovation process and investigates the claim that tacit knowledge because it is difficult to transfer in the absence of labour mobility may constitute a basis for sustained regional competitive advantage the closing section uses case study material based on minneapolis and cambridge to illustrate the importance for innovation of a regional capability for combining and integrating diverse knowledge and of the sources of such capabilities as pre conditions for successful high technology regions lawson c et lorenz e 1999 l apprentissage collectif la connaissance implicite et la capacite regio

comparisons and combinations of long and long short strategies market neutral long short strategies get their returns from alphas and short rebates long strategies get their returns from alpha and the market differing return and risk sources complicate their comparison partly because of the strong market referenced focus of conventional performance analysis compelling theoretical advantages of active return per unit of active risk suggest that long short strategies are better able to deliver excess return than are conventional institutional long strategies long short strategies even with tiny positive alphas are seen to improve investors efficient frontiers when added to a traditional t bill long portfolio mix mostly because their risk sources are uncorrelated surprisingly the improvement occurs even if long short strategies are sharpe ratio inferior to long strategies these results provide theoretical support for including long short strategies in most investors mix of assets

the efficiency gains of long short investing long short strategies have generated controversy and institutional interest for more than 10 years we analyzed the efficiency gains of long short investing where we defined efficiency as the information ratio of the implemented strategy the optimal portfolio relative to the intrinsic information ratio of the alphas the efficiency advantage of long short investing arises from the loosening of the surprisingly important long only constraint long short and long only managers need to understand the impact of this significant constraint long short implementations offer the most improvement over long only implementations when the universe of assets is large asset volatility is low and the strategy has high active risk the long only constraint induces biases particularly toward small stocks limits the manager s ability to act on upside information by not allowing short positions that could finance long positions and reduces the efficiency of traditional high risk long only strategies relative t

on the fisher effect abstract we use post war quarterly data for belgium canada denmark france germany greece ireland japan the netherlands the united kingdom and the united states to examine the fisherian link between inflation and short term nominal interest rates in doing so we apply the king and watson 1997 methodology paying particular attention to the integration and cointegration properties of the variables since meaningful fisher effect tests critically depend on such properties we conclude that the data are generally rejecting the fisher effect

the fisher effect and the term structure of interest rates tests of cointegration the literature on the fisher effect has ignored the potential relationship between inflation and long term interest rates using an expectations model of the term structure of interest rates the authors establish the conditions under which innovations in short term inflation will be transmitted to long term as well as short term interest rates cointegration tests find support for both the fisher effect and the expectations theory of the term structure copyright 1993 by mit press

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

portfolio tax trading with carryover losses we study portfolio choice with multiple stocks and capital gains taxation assuming that capital losses can only offset current or future realized capital gains we show through backtesting using empirical distributions that optimal equity holdings over an extended period are significantly lower on average than benchmark holdings suggested in the literature using value and growth or small and large portfolios the backtests show that allocations remain persistently underdiversified carryover losses have large economic significance since they can dramatically shrink the no trade region finally the backtested economic cost of incorrectly modeling capital losses is at least 8 of lifetime wealth the internet appendix is available at https doi org 10 1287 mnsc 2017 2733 this paper was accepted by neng wang finance

do after tax returns affect mutual fund inflows abstract this paper explores the relationship between the after tax returns that taxable investors earn on equity mutual funds and the subsequent cash inflows to these funds previous studies have documented that funds with high pretax returns attract greater inflows this paper presents evidence based on a large sample of retail equity mutual funds over the period 1993 1999 that after tax returns have more explanatory power than pretax returns in explaining inflows in addition funds with large overhangs of unrealized capital gains experience smaller inflows all else equal than funds without such unrealized gains a large capital gain overhang discourages both gross fund inflows and gross outflows but the inflow effect dominates the outflow effect

when do spinouts enhance parent firm performance evidence from the u s automobile industry 1890 1986 spinouts entrepreneurial ventures founded by ex employees of incumbent firms within the same industry have emerged in numerous industries some existing literature argues that they typically have a negative association with their parents performance because of the loss of human capital the disruption of organizational routines and subsequent adverse competitive effects more recent work however suggests that such negative effects may have been overstated and argues that there are conditions under which spinouts may be linked to enhanced performance of the parent i contribute to this literature by theorizing about and empirically testing for such conditions in particular using data from the u s automobile industry spanning 1890 to 1986 i find evidence that spinouts are associated with enhanced parent performance when they increase the parent s corporate coherence either through a the core competencies and capabilities domain by refocusing the parent s resources on the core or b the cognitive path by resolving a conflict at the top level of the parent s hierarchy i discuss implications for both research and practice

inertia and change in the early years employment relations in young high technology firms this paper considers processes of organizational imprinting in a sample of 100 young high technology companies it examines the effects of a pair of initial conditions the founders models of the employment relation and their business strategies our analyses indicate that these two features were well aligned when the firms were founded however the alignment has deteriorated over time due to changes in the distribution of employment models in particular the star model and commitment model are less stable than the engineering model and the factory model despite their instability these two blueprints for the employment relation have strong effects in shaping the early evolution of these firms in particular firms that embark with these models have significantly higher rates of replacing the founder chief executive with a non founder as well as higher rates of completing an initial public stock offering some implications of these findings for future studies of imprinting and inertia in organizations are discussed

leverage aversion and portfolio optimality portfolio volatility is the only source of risk in mean variance optimality but it fails to capture all the risks faced by leveraged portfolios these risks include the possibility of margin calls and forced liquidations at adverse prices and losses beyond the capital invested to recognize these risks the authors incorporated leverage aversion into the optimization process and examined the effects of volatility and leverage aversion on optimal long short portfolios

evaluating the impact of inequality constraints and parameter uncertainty on optimal portfolio choice we present new analytical results for the impact of portfolio weight constraints on an investor s optimal portfolio when parameter uncertainty is taken into account while it is well known that parameter uncertainty and imposing weight constraints results in reduced certainty equivalent returns in the general case there are no analytical results in a special case commonly used in the funds management literature we derive analytical expression for the certainty equivalent loss that does not depend on the risk aversion parameter we illustrate our theoretical results using hedge fund data from the perspective of a fund of fund manager our contribution is to formalize the framework to investigate this problem as well as providing tractable analytical solutions that can be implemented using either simulated or asset manager returns

does monetary policy affect the long run expectations of non stationary real interest rates in this article we analyse whether the monetary policy affects the long run expectation of the non stationary real interest rate the analysis is conducted through beveridge nelson trend decomposi

fundamentals of efficient factor investing corrected may 2017 combining long only constrained factor subportfolios is generally not a mean variance efficient way to capture expected factor returns for example a combination of four fully invested factor subportfolios low beta small size value and momentum captures less than half e g 40 of the potential improvement over the market portfolio s sharpe ratio in contrast a long only portfolio of individual securities using the same risk model and return forecasts captures most e g 80 of the potential improvement we adapt traditional portfolio theory to more recently popularized factor based investing and simulate optimal combinations of factor and security portfolios using the largest 1 000 common stocks in the us equity market from 1968 to 2015

60 years of portfolio optimization practical challenges and current trends abstract the concepts of portfolio optimization and diversification have been instrumental in the development and understanding of financial markets and financial decision making in light of the 60 year anniversary of harry markowitz s paper portfolio selection we review some of the approaches developed to address the challenges encountered when using portfolio optimization in practice including the inclusion of transaction costs portfolio management constraints and the sensitivity to the estimates of expected returns and covariances in addition we selectively highlight some of the new trends and developments in the area such as diversification methods risk parity portfolios the mixing of different sources of alpha and practical multi period portfolio optimization

tax managed factor strategies we examine the tax efficiency of an indexing strategy and six factor tilts between june 1995 and march 2018 average value added by tax management exceeded 1 50 per year at a 10 year horizon for

the myth of the absolute return investor the notion of absolute return investing is spreading like wildfire many people believe that superior returns can be achieved by managers with strong views and little regard for benchmarks this article attempts to define absolute return investing and figure out whether it exists the conclusion is that all investment returns consist of a beta part representing the correlation of the active portfolio with one or more market benchmarks or normal portfolios and an active alpha part thus all investing is relative return investing in which active returns are earned relative to an appropriate benchmark or mix of benchmarks

do or die competitive effects and red queen dynamics in the product survival race this study explores the reciprocal relationship between the nature and duration of competition and innovation outcomes we propose that the perpetually driven reciprocal sequence of competitive action and reaction known as the red queen in evolutionary biology is a cardinal force behind the success of innovations we test our hypotheses applying a comprehensive data set of all automobile manufacturers known to compete in the us automobile market at any time between 1946 and 2008 using data composed of 8203 model year pairs 1071 models from 148 different brands we find that recent competitive experiences of models rather than those in the distant past make them more viable competitors additionally superior reputation and market share are found to effectively shield models from the pernicious effects of red queen competition

in defense of portfolio optimization what if we can forecast author response we thank richard o michaud david n esch and robert o michaud for their interest in our paper in their letter they suggest that our results are inconsistent with the canonical literature beca

what would yale do if it were taxable corrected january 2016 the distinctive financial goals and constraints of ultra high net worth individuals together with their aggregate growth in assets have led to the emergence of new institutional investing which includes the best practices from institutional investors but also incorporates the critical element of tax management the authors design new institutional asset allocations that incorporate traditional investment metrics in a tax aware setting specifically they show how risk and after tax returns need to be combined from inception when seeking an optimal after tax asset allocation diversification is especially important for taxable investors because low asset class correlations can facilitate the inclusion of attractive but tax inefficient asset classes in a tax aware allocation

portfolio frontiers with restrictions to tracking error volatility and value at risk abstract asset managers are often given the task of restricting their activity by keeping both the value at risk var and the tracking error volatility tev under control however these constraints may be impossible to satisfy simultaneously because var is independent of the benchmark portfolio the management of these restrictions is likely to affect portfolio performance and produces a wide variety of scenarios in the risk return space the aim of this paper is to analyse various interactions between portfolio frontiers when risk managers impose joint restrictions upon tev and var specifically we provide analytical solutions for all the intersections and we propose simple numerical methods when such solutions are not available finally we introduce a new portfolio frontier

how variation in signal quality affects performance the information coefficient ic the correlation between forecasted and realized return is a popular measure of signal quality as shown in this article variation in ic is an important source of active risk and ic variation has an effect on optimal portfolio structure contrary to popular belief the ability to take short positions in equity portfolios does not necessarily lead to superior performance managers who can maintain a stable ic over time will benefit from short extensions but managers who have an unstable ic may see their performance deteriorate from increased short positions

the tax benefits of separating alpha from beta long only active investment strategies have an inherent flaw investors pay capital gains taxes on market related gains as well as on the alpha created by separating alpha and beta taxes can be r

on the optimality of long short strategies we consider the optimality of portfolios not subject to short selling constraints and derive conditions that a universe of securities must satisfy for an optimal active portfolio to be dollar neutr

illiquidity position limits and optimal investment for mutual funds we study the optimal trading strategy of mutual funds that face both position limits and differential illiquidity we provide explicit characterization of the optimal trading strategy and conduct an extensive analytical and numerical analysis of the optimal trading strategy we show that the optimal trading boundaries are increasing in both the lower and the upper position limits we find that position limits can affect current trading strategy even when they are not currently binding and other seemingly intuitive trading strategies can be costly we also examine the optimal choice of position limits

portfolio constraints and the fundamental law of active management active portfolio management is typically conducted within constraints that do not allow managers to fully exploit their ability to forecast returns constraints on short positions and turnover for example are fairly common and materially restrictive other constraints such as market capitalization and value growth neutrality with respect to the benchmark or economic sector constraints can further restrict an active portfolio s composition we derive ex ante and ex post correlation relationships that facilitate the performance analysis of constrained portfolios the ex ante relationship is a generalized version of a previously developed fundamental law of active management and provides an important strategic perspective on the potential for active management to add value the ex post correlation relationship represents a practical decomposition of performance into the success of the return prediction process and the noise associated with portfolio constraints we verify the accuracy of these relati

performance attribution and the fundamental law the reported study operationalized the fundamental law of active management in the context of a factor based performance attribution system the system incorporates factor payoffs in the linear regression framework that many portfolio managers and external reviewers use to judge what is being rewarded in the market the study indicates that parameters of the fundamental law can be used to approximate and interpret the results of the regression based performance attribution system the procedure is illustrated by the use of security holdings returns and factor exposure data for two portfolios benchmarked to the s p 500 index for april 1995 to march 2004

frequent incremental change organizational size and mortality in high technology competition while radical technological change is often characterized as hazardous particularly to incumbents incremental technological change has appeared to be immune from such risks little attention has been given to the possibility that under some circumstances incremental technological change can be quite risky this article argues that there may be tradeoffs to high rates of incremental technological change the costs are of two kinds the organizational disruptions associated with frequent technological change and overestimating the advantages and receptiveness of the technological improvement we argue that larger firms are better equipped than smaller firms to cope with these costs and will reap greater benefits from incremental changes using data on the population of worldwide floppy disk drive manufacturers we find that frequent incremental technical changes decrease organizational mortality for large firms but increase it for smaller firms we also find that large firms that frequently introduce incremental technological improvements are more potent competitors this study helps us understand how frequent incremental change affects mortality as organizations grow advice to managers to engage in continuous incremental innovation can therefore be misguided because unless firms are large they may incur costs that are so great that the firm actually fails by innovating frequently copyright 2010 the author 2009 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

new size measurements in population ecology in organizational ecology the analysis of the impact of competition between populations on vital ratios is relatively underdeveloped this paper addresses this issue by developing new competition measurements that focus on the importance of organizational size the application of these measurements in the case of competition between organizational subforms in a population and their impact on mortality rates demonstrate their usefulness for modelling competition specifically the results show how levels of competition between firms in a population can be more clearly analysed when the rival population mass or concentration indices are used

creative self destruction among organizations an empirical study of technical innovation and organizational failure in the american automobile industry 1885 1981 a hotly debated question of organizational theory especially evolutionary theories of organization asks how inert are organizational structures answering the question requires analysis of not only organizational change but also of the consequences of change for organizational survival this study examines one such organizational change technical innovation and its effects on the failure rates of american automobile producers from 1885 to 1981 technical innovations are shown to generate primarily beneficial effects for the firms spawning them and primarily detrimental effects for competitor firms however analysis of certain organizational contexts large organizations in particular suggests that the risks of innovation may on occasion outweigh benefits the findings imply that some theories of strategic management need rethinking copyright 1996 by oxford university press

optimizing tracking error constrained portfolios active portfolios subject to tracking error te constraints are the typical setup for active managers tasked with outperforming a benchmark the risk and return relationship of such constrained po

on the strategic behavior of large investors a mean variance portfolio approach abstract one key assumption of markowitz s model is that all traders act as price takers in this paper we extend this mean variance approach in a setting where large investors can move prices instead of having an individual optimization problem we find the investors nash equilibrium and redefine the efficient frontier in this new framework we also develop a simplified application of the general model with two assets and two investors to shed light on the potential strategic behavior of large and atomic investors our findings validate the claim that large investors enhance their portfolio performance in relation to perfect market conditions besides we show under which conditions atomic investors can benefit in relation to the standard setting even if they have not total influence on their eventual performance the two investors two assets setting allows us to quantify performance and do sensitivity analysis regarding investors market power risk tolerance and price elasticity of demand finally for a group of well known etfs we empirically show how price variations change depending on the volume traded we also explain how to set up and use our model with real market data

steady change the 200 largest us manufacturing firms throughout the 20th century this paper discusses the existence of structural change in business activity and technological competence among the 200 largest us manufacturing companies throughout the 20th century the data were taken from chandler scale and scope 1990 and fortune magazine the analysis of corporate evolution in used to assess continuity versus turbulence of business organizations in the context of the neo schumpeterian long wave hypothesis the empirical results show that the giants of the late 20th century are not the same as those at the beginning of that period persistence in the sample is very limited moreover turbulence is not smooth but rather occurs by impulses that affect specific industries and it has increased over time overall the pattern of corporate entry and industry development is very indicative of the new opportunities emerging with information and communication technologies this process of open ended continuous transformation supports the case for putting change at the centre of economic analysis

short term interest rates as predictors of inflation on testing the hypothesis that the real rate of interest is constant in an innovative and provocative paper in this review eugene fama presents evidence which appears to be consistent with the joint hypothesis that the real rate of interest ignoring taxes is a constant and that the market for u s treasury bills is efficient in the sense of embodying rational expectations those findings are strikingly at variance with a long list of previous studies which seemed to support the view that the real rate of interest varies over time and can be related to economic variables such as real output monetary policy and so forth 2 the methodologies which lead to these contradictory conclusions are quite different previous studies had followed the lead of irving fisher by relating nominal interest rates to distributed lags on past rates of inflation 3 these distributed lags are generally interpreted as approximations to the market s expected rate of inflation and thus any remaining variation is attributed to variation in the real rate 4 fama s methodology on the other hand draws on the fact that the difference between the market interest rate and the subsequently observed rate of inflation the ex post real interest rate consists by definition of the ex ante real interest rate plus a pure forecasting error 5 the hypothesis of market efficiency implies that these forecasting errors must be serially random thus observing ex post real rates is equivalent to observing ex ante real rates with random measurement error these errors of course confound the problem of identifying variation in the ex ante real rate in this paper we will argue that the relative magnitude of these measurement errors is such that the tests carried out by fama were not powerful enough to reject the joint hypothesis that the ex ante real rate is a constant and expectations are rational more powerful tests which are presented in this paper using the same data do lead to rejection of that hypothesis of course rejection