Simon Graduate School of Business
University of Rochester
Rochester, NY 14627
Institutional Affiliation: University of Rochester
NBER Working Papers and Publications
|April 2016||Volatility Managed Portfolios|
with Tyler Muir: w22208
Managed portfolios that take less risk when volatility is high produce large alphas, substantially increase factor Sharpe ratios, and produce large utility gains for mean-variance investors. We document this for the market, value, momentum, profitability, return on equity, and investment factors in equities, as well as the currency carry trade. Volatility timing increases Sharpe ratios because changes in factor volatilities are not offset by proportional changes in expected returns. Our strategy is contrary to conventional wisdom because it takes relatively less risk in recessions and crises yet still earns high average returns. This rules out typical risk-based explanations and is a challenge to structural models of time-varying expected returns.
Published: ALAN MOREIRA & TYLER MUIR, 2017. "Volatility-Managed Portfolios," The Journal of Finance, vol 72(4), pages 1611-1644.
|July 2014||The Macroeconomics of Shadow Banking|
with Alexi Savov: w20335
We build a macroeconomic model that centers on liquidity transformation in the financial sector. Intermediaries maximize liquidity creation by issuing securities that are money-like in normal times but become illiquid in a crash when collateral is scarce. We call this process shadow banking. A rise in uncertainty raises demand for crash-proof liquidity, forcing intermediaries to delever and substitute toward safe, collateral- intensive liabilities. Shadow banking shrinks, causing the liquidity supply to contract, discount rates and collateral premia spike, prices and investment fall. The model produces slow recoveries, collateral runs, and flight to quality and it provides a framework for analyzing unconventional monetary policy and regulatory reform proposals.
Published: ALAN MOREIRA & ALEXI SAVOV, 2017. "The Macroeconomics of Shadow Banking," The Journal of Finance, vol 72(6), pages 2381-2432.