Celebrating 80 Years of the Financial Analysts Journal
To celebrate the 80th anniversary of the Financial Analysts Journal®, the Advisory Council, Executive Editor, and Managing Editor selected a small sample of influential articles spanning many decades. The list is not comprehensive and reflects personal preferences but serves to illustrate the impressive contributions to the investment management industry made through the pages of the Journal. We would also like to call attention to the winners of the Graham and Dodd Award, established in 1960 to recognize excellence in research and financial writing in the Journal. And in a nod to our very first issue in 1945, we invite you to read two articles—from Benjamin Graham and Lucien O. Hooper—answering the question, “Should Security Analysts Have a Professional Rating?”
1960 - 1980
The Future of Financial Analysis
The author examines the state of the financial analyst profession, competition within the industry, and the inevitability of speculation in financial analysis. He provides an approach to portfolio construction and gives three suggestions for improving the industry.
Why Not Diversify Internationally Rather Than Domestically?
This article calls for increased portfolio diversification through the inclusion of foreign stocks to reduce risk. It offers practical suggestions to help portfolio managers internationally diversify their portfolios at low cost.
The Loser’s Game
The author discusses how changes in the investment industry caused active investing to become less profitable on average. He asserts that an increase in competition among active institutional investors led to higher portfolio turnover and thus higher transaction costs that reduce potential profits.
Markowitz Revisited
The author explains the law of the average covariance, which limits diversification benefits and casts doubt on mean–variance analysis, despite its ease relative to expected utility analysis. He shows mean–variance analysis suffices if expected utility can be closely estimated using risk and return.
1980 - 2000
Determinants of Portfolio Performance
In this article, the authors analyze 91 US pension plans to assess what drives portfolio performance. They find that investment policy explains about 94% of return variation, while market timing and security selection have limited impact.
Pension Asset Allocation Through Surplus Management
This article explores pension asset allocation through the lens of surplus management. Liabilities’ long-term nature makes them more sensitive to interest rates than assets are. The article discusses adjusting the bond component duration to reduce surplus risk due to equities’ shorter durations.
Dynamic Strategies for Asset Allocation
This article examines dynamic asset allocation strategies that adjust portfolio weights in response to changing market conditions. It explores how tactical shifts can enhance returns and manage risk over time, contrasting dynamic approaches with static allocation models to improve performance.
Disentangling Equity Return Regularities: New Insights and Investment Opportunities
This article investigates persistent patterns in equity returns, such as the size and value effects, and seeks to disentangle their underlying causes using the powerful tool of multivariate regression. It offers insights into market inefficiencies and explores how investors can capitalize on them.
Universal Hedging: Optimizing Currency Risk and Reward in International Equity Portfolios
The author presents a universal hedging framework for managing currency risk in global equity portfolios. He shows how to optimize the risk–return tradeoff by following three rules: hedging foreign equity, hedging less than 100% of foreign equity, and hedging equities equally for all countries.
The Arithmetic of Active Management
The author asserts that on average, passive and active management returns are equal before costs and active returns are greater after costs. He examines reasons why active managers nevertheless make claims of beating the market.
Global Portfolio Optimization
This article addresses two issues with quantitative asset allocation models and shows they can be improved by using the global capital asset pricing equilibrium. They explore the use of these models to construct optimal portfolios that incorporate investors’ views with varying levels of confidence.
On the Risk of Stocks in the Long Run
This article challenges the conventional belief that stocks are less risky over the long run. It examines historical data to show that long-term stock returns can be more volatile than often assumed, especially when accounting for changing economic conditions. The analysis offers critical insights for long-term investors and portfolio planners.
The End of Behavioral Finance
This article critiques behavioral finance, arguing that it lacks a unified framework and predictive power. It examines key behavioral biases and their limitations, suggesting that while behavioral insights are valuable, they should complement—not replace—traditional financial theory in explaining market behavior.
Valuing the Dow: A Bottom-Up Approach
This article presents a bottom-up valuation of the Dow Jones Industrial Average, analyzing the fundamental value of individual component stocks to estimate the index’s intrinsic worth. It contrasts this method with top-down approaches and provides insights into valuation accuracy, investor expectations, and market pricing efficiency.
2000 - Present
Hedge Fund Benchmarks: A Risk-Based Approach
The authors propose a risk-based approach to benchmarking hedge funds, addressing the challenges of evaluating performance across diverse strategies. They introduce factor-based models to assess risk exposures and better align benchmarks with hedge fund behavior.
The Strategic and Tactical Value of Commodity Futures
This article examines the strategic and tactical roles of commodity futures in a diversified portfolio. It shows that commodity futures can be effective in diversifying traditional stock and bond portfolios but may not be helpful in hedging inflation and pension liabilities.
Facts and Fantasies about Commodity Futures
The authors analyze the historical performance of commodity futures, separating common myths from empirical realities. They explore risk, return, and diversification benefits, showing that commodity futures can enhance portfolio efficiency and highlighting their role as a distinct asset class.
In Defense of Optimization: The Fallacy of 1/N
This article defends portfolio optimization against the popular but simplistic 1/N diversification strategy, which allocates equally across assets. It shows that optimization, when properly implemented, can significantly outperform naive diversification by incorporating risk and return expectations.
High-Frequency Trading and Its Impact on Markets
The author examines the rise of high-frequency trading (HFT) and its effects on market quality, including liquidity, volatility, and price efficiency. She provides empirical evidence on how HFT influences trading dynamics, assessing its benefits and risks to market participants and market integrity.
The Only Spending Rule Article You Will Ever Need
This article evaluates various spending rule strategies based on sustainability, simplicity, and adaptability. It asserts that an annually recalculated virtual annuity is a good option that can prevent retirees from running out of money, although consumption will vary as asset values change.
The Evolution and Success of Index Strategies in ETFs
The author traces the development of index strategies in exchange-traded funds, analyzing their impact on investment management. She explores how index-based ETFs have improved market access, cut costs, and changed investor behavior, while addressing market efficiency and systemic risk concerns.
Factor Investing in the Corporate Bond Market
This article explores the application of factor investing in the corporate bond market, identifying key style factors that can explain return variations. It provides empirical evidence supporting these factors’ effectiveness and explains how they can be used to enhance bond portfolio construction.
Buffett’s Alpha
This article analyzes Warren Buffett’s exceptional investment track record. It attributes his success to a strategy of investing in safe, high-quality, and inexpensive stocks while using leverage effectively. The study provides a quantitative explanation for his consistent outperformance.
Publish in the Financial Analysts Journal
Since 1945, Financial Analysts Journal has been publishing rigorous investment management research for practitioners. The flagship publication of CFA Institute, Financial Analysts Journal gives authors the backing of the largest association of investment professionals and the expertise of a world-renowned commercial publisher, Taylor & Francis.
Why publish in the Journal?