NEW YORK--(BUSINESS WIRE)--II Journals is pleased to announce the recipients of the 19th Annual Bernstein Fabozzi/Jacobs Levy Awards for the best articles appearing in The Journal of Portfolio Management during 2017.
On the basis of voting by subscribers, the Best Article designation was awarded to Robert Arnott, Denis Chaves, and Tzee-man Chow for their article, “King of the Mountain: The Shiller P/E and Macroeconomic Conditions,” which appeared in the Fall 2017 issue. The article discusses the limitations of the cyclically adjusted price/earnings ratio – sometimes called the “CAPE ratio” or the “Shiller P/E ratio” – in predicting equity returns over the short term. The authors present a model that includes inflation and the level of real bond yields as variables that influence the forecasted level of short-term equity returns.
Robert Arnott is the chairman and CEO of Research Affiliates, LLC, in Newport Beach, CA. Denis Chaves is a portfolio manager at Vanguard’s quantitative equity group in Malvern, PA. Tzee-man Chow is a senior vice president at Research Affiliates, LLC, in Newport Beach, CA.
“We are thrilled and honored at this recognition, named after some of our heroes in quantitative finance,” said Rob Arnott. “As is the case with so many ideas, we owe a debt of gratitude to many. The valuation mountain was inspired by Marty Leibowitz, who presented his value tent, linking PEs to real rates, at Q Group at least a decade ago. We thought the same relationship would apply against inflation, and found that the two dimensions strengthened each other, creating the valuation mountain. The same relationship works everywhere. An abnormal real rate or inflation whether high or low tells us there's something wrong with the economy, and investors will price stocks lower to reflect a demand to be paid for the added uncertainty. Denis and Tzee came up with the wonderful Gaussian curve-fitting technique, never before applied in this arena, that led to the elegant valuation mountain. With a short list of parameters, we found radically improved statistical significance and improved forecasting power at short horizons. It's a privilege to be chosen for this award by the readers and editorial board of The Journal of Portfolio Management.”
According to Bruce Jacobs, principal and co-founder of Jacobs Levy Equity Management, “The findings by Arnott, Chaves, and Chow, that moderate levels of inflation and real interest rates coincide with the highest average valuation multiples, are an important contribution to the literature. They will cause many investment experts to reconsider the widespread assumption that stocks fare best when inflation and interest rates are at rock bottom.”
II Journals also recognized three Outstanding Articles from the 2017 collection.
“Factor-Based Investing: The Long-Term Evidence” by Elroy Dimson (Univ. of Cambridge), Paul Marsh (London Business School), and Mike Staunton (London Business School) appeared in the 2017 special Quantitative Strategies issue. The authors examine size, value, income, momentum and volatility as key factors driving equity returns. They discuss performance over periods as long as 117 years and conclude that evidence on the premiums associated with the factors is not conclusive.
“Does Past Performance Matter in Investment Manager Selection?” by Bradford Cornell (Caltech), Jason Hsu (Rayliant Global), and David Nanigian (Cal. State Univ., Fullerton) appeared in the Summer 2017 issue. The authors reach the counter-intuitive conclusion that it is better for asset owners to redeploy assets from high-performing managers to low-performing managers rather than vice versa. Essentially, they find that manager performance displays mean reversion.
“Man vs. Machine: Comparing Discretionary and Systematic Hedge Fund Performance” by Campbell R. Harvey (Duke University), Sandy Rattray (Man Group), Andrew Sinclair (Realindex), and Otto Van Hemert (AHL) also appeared in the Summer 2017 issue. In that article, the authors compared the performance of two groups of hedge funds. One group employed rules-based strategies (systematic funds) and the other applied qualitative discretion (discretionary funds). The authors found similar performance for both groups over the period 1996 to 2014.
The Bernstein Fabozzi/Jacobs Levy Awards were established in 1999, on the 25th anniversary of The Journal of Portfolio Management, to honor Editors Peter Bernstein and Frank Fabozzi for their extraordinary contributions and to promote research excellence in the theory and practice of portfolio management. The annual awards, co-founded and generously funded by Jacobs Levy Equity Management, consist of a $2,500 prize for the Best Article and $1,000 prizes for each of the Outstanding Articles.
Articles published in the Journal’s four regular issues in 2017 as well as in its special Quantitative Strategies issue and Real Estate issue were eligible for the awards.
About The Journal of Portfolio Management
Edited by Frank Fabozzi and founded in 1974 by Peter L. Bernstein, The Journal of Portfolio Management is the leading editorial source of cutting-edge strategies and analyses for institutional investment management. Published by Pageant Media, LTD, it is available quarterly in print and online.
About Jacobs Levy Equity Management
Jacobs Levy Equity Management, founded in 1986, is an independent, registered investment advisor dedicated to the management of U.S. equity portfolios for a prestigious global roster of institutional clients. The firm offers long equity, 130-30 long-short, and absolute return strategies, with an investment philosophy and approach grounded in empirical financial research. Bruce Jacobs and Kenneth Levy are widely recognized for their own award-winning research as collected together in their recently released McGraw-Hill book, Equity Management: The Art and Science of Modern Quantitative Investing, Second Edition.
About II Journals
II Journals offers in-depth, original, and practical research in key areas of investment management and finance, including fixed income, index investing, derivatives, trading, private equity, portfolio management, structured finance, and wealth management. Written and edited by world-renowned practitioners and academics, the journals are extensively read and highly regarded in the industry.