The shape of the yield curve is often cited as a leading reliable economic indicator. The yield curve maps the relationship between interest rates and the maturity of fixed-income investments on a graph. On the horizontal axis is time or…

Until the early 20th century, the money supply was primarily dictated by the supply of gold and silver backing up bank deposits. This made periods of both deflation and inflation expected. Now that fiat currencies are backed by the faith…

Economic forecasting typically falls under one of three distinct approaches: Econometric modeling. Economic indicators. Checklists. Econometric Modeling Econometric modeling is the use of statistical methods to map out relationships among economic variables. Models may range from simple to extensive and…

Exogenous shocks refer to external factors (created outside the economic model) that profoundly affect an economy’s growth. While some factors enhance growth, others impede growth. The following is a summary of typical shocks. Sources of Exogenous Shocks Policy changes: These…

The expected trend growth rate is an all-important element in developing capital market expectations. Its primary use is in developing expected returns for asset classes. In addition, it informs potential currency movements and government policy. Critical considerations of economic trend…

Capital market expectations involve setting likely risk and return parameters for a portfolio. These expectations inform the asset allocation that is ultimately selected, which is the investment results’ primary driver. Macro expectations involve forecasting risk and returns for an entire…

In a truly efficient market, no new information should lead to the generation of alpha, defined as returns in excess of the market. Markets are not always truly strong-form efficient. Indeed, some anomalies that seem to contradict the efficient market…

Research has shown that making decisions in a group setting does not always yield optimal outcomes. Committees can include but are not limited to the following: Research teams. Analyst collaborations. Board of Trustees. Investment clubs. Issues arise when committees are…

An analyst’s job is to keenly study the firms under their charge to make appropriate recommendations. Often, analysts are considered experts on a particular industry or group of companies. Since their relationships with the market are unique, it stands to…

Behavioral portfolios differ from traditional mean-variance portfolios. Rather than seek the optimal combination of assets that produces the highest risk-adjusted returns and utility to the investor, behavioral portfolios are generally structured in layers. Even though these portfolios are not technically…