Asset Management

Real rates declined by more than 4% points between 1980 and 2023 driving large capital gains on long-lived assets. Households that rely on their financial wealth to finance future consumption need more wealth to fund the same consumption plan after rates have declined. To be hedged against interest rate risk, households need to match the duration of their portfolio to the duration of a claim on their future consumption in excess of labor income. We find that young and poor US households were worse off when rates declined, because they had too little duration in their portfolios.

We employ machine learning methods to identify skill among active bond mutual fund managers. Using a comprehensive dataset of 3,021 unique U.S. bond funds from May 1995 to November 2024, we demonstrate that fund-level and family-level characteristics, particularly past performance metrics, reliably predict future bond fund performance. A prediction-weighted portfolio strategy that goes long the best-10% of funds and short the worst-10% of funds generates monthly abnormal returns of 30 basis points with an information ratio of 24.6%. The outperformance persists for up to 36 months.

In the presence of aggregate risk, governments face a trade-off between insuring taxpayers or bondholders. The literature assumes that the government can finance deficits at the risk-free rate, protecting bondholders at the expense of taxpayers. We characterize the implications of this assumption on the surplus process. Under reasonable debt dynamics, counter-cyclical debt issuance that protects taxpayers against adverse macro-economic shocks is limited in time and scope, and comes at the expense of higher long-run risk.

We use topic modeling to construct novel news-based measures for tracking energy markets. Our parsimonious yet comprehensive set of indicators summarizes the information content of millions of news articles and forecasts oil spot, futures, and energy company stock returns, and changes in oil volatility, production, and inventories. Using an econometrically robust framework to evaluate both in- and out-of-sample predictive performance, we show that our measures are not spanned by existing text and nontext variables.

Individuals behave differently when they know the objective probability of events and when they do not. The smooth ambiguity model accommodates both ambiguity (uncertainty) and risk. For an incomplete, competitive asset market, we develop a revealed preference test for asset demand to be consistent with the maximization of smooth ambiguity preferences; and we show that ambiguity preferences constructed fromfinite observations converge to underlying ambiguity preferences as observations become dense.

Accounting Standards Update (ASU) 2016-01 requires that unrealized gains and losses on equity investments (equity-URGL) previously recognized in other comprehensive income now be included in net income. Using a sample of public insurers, we examine how this accounting standard change influences managerial investment decisions, with a particular focus on the moderating effects of compensation contracting and financial reporting practices.

Projects with high societal impact--such as biodiversity conservation and climate change mitigation--often offer financial returns that are too low, or too risky, to attract private capital. Under such circumstances, it can be difficult to raise adequate financing for these projects. A potential solution is blended finance, that is, the blending of concessional funding (e.g., from governments, multilateral development banks, or philanthropies) with private capital.

The US government has a massive footprint on any US company that goes way beyond just the impact of tariffs. How the government chooses to use that influence can make or break the company. Read the full article on Forbes.com