G. Michael Phillips

Founders versus Descendants: The Profitability, Efficiency, Growth Characteristics and Financing in Large, Public, Founding-Family-Controlled Firms

This study examines the differences between founder-controlled firms and firms controlled by descendants or relatives of the founder. In general, we observe that founder-controlled firms grow faster and invest more in capital assets and research and development. However, descendant-controlled firms are more profitable. The results are consistent with a life-cycle view of the family firm in which the early years are characterized by rapid growth. The experience of the early years provides a basis for later, when the firm is more professionally run and can exploit its established position in the market.

AN EXPERIMENTAL STUDY OF JOB EVALUATION AND COMPARABLE WORTH

The doctrine of comparable worth rests on an assumption that each job possesses an inherent worth independent of the market forces of supply and demand. Implementation of comparable worth further requires that inherent job worth be measured with reasonable accuracy. This paper reports the results of an experimental study of comparable worth. Three commercial job evaluation firms rated the same set of 27 jobs in an actual company. Statistical analysis of the experimental data indicates that the three evaluators differed in which job trait, or constellation of traits, they used to evaluate inherent job worth, implying that at least one of them failed to measure inherent job worth accurately. These results suggest that any attempt to implement comparable worth may be quite sensitive to the evaluator chosen to measure job worth.

Social security payments, money supply announcements, and interest rates

Abstract A monthly cycle existed in initially announced changes in seasonally adjusted M1 for a period extending at least from September 1977 to February 1984. This cycle was the source of systematic errors in the widely used Money Market Services forecast of M1. Such errors can induce a spurious relation between interest rates and expected changes in the money supply. When the survey forecasts are corrected to eliminate systematic errors, the apparent negative relation between interest rates and expected money supply changes disappears. Interest rates were not systematically related to either anticipated or unanticipated money supply changes during the period February 1984 to December 1986.

Low- (Economic) Volatility Optimization

This article evaluates several low-volatility portfolio strategies to identify the return penalty, if any, associated with increased downside safety. The authors compare the S&P 500 Low Volatility Index with standard benchmarks and with portfolios specifically constructed to have low-volatility characteristics. They find that portfolios constructed using low-frequency economic measures for stock screening and portfolio optimization outpaced the S&P Low Volatility Index in absolute and relative terms. The authors conclude with practical suggestions for wealth managers about incorporating low-volatility methods into their practices.

Low- (Economic) Volatility Investing

Low-volatility investing has recently witnessed a surge in media coverage and experienced renewed interest in academic research. We assess various low- (economic) volatility portfolios against the S&P 500 Index, S&P 500 Low Volatility Index, and Fama–French-inspired U.S. Core Equity 1 Portfolio. Our portfolios outperformed the benchmarks, for the whole period as well as subperiods, and even more so when economic variables and criteria were incorporated with the down-market beta. This study shed further light on the efficacy of economic factors—that by constructing a low-volatility portfolio with economic factors would enhance a portfolio’s risk–reward ratio over a portfolio constructed purely with return-based measures.

Tactical Asset Allocation with Macroeconomic Factors

Tactical asset allocation is explored using an economic-based factor pricing model. Using a filtering method based on asset responses to the economy and current economic data, alternative optimization methods are considered including equally-weighted, low-volatility, and mean-variance (maximum Sharpe ratio) allocations. Using exchange-traded funds as proxies for asset classes, portfolios were constructed and rebalanced every half year from 2006 through 2013. We find that the economic response filtering with the maximum Sharpe ratio optimization provided the best overall performance in terms of returns while the low- (economic) volatility portfolio had the least volatility.

Portfolio Size Revisited

Using a sophisticated sampling technique, the authors compare randomly constructed stock portfolios with portfolios using the underlying population and evaluate them with 18 different measures. The randomization included portfolio size and portfolio start date to eliminate timing bias from the analysis. By comparing the 18 statistics across the portfolios, average portfolio sizes to reproduce the population characteristics were computed. The optimal portfolio size depended greatly on the criterion being used to judge the adequacy of diversification.

Eta® Analysis of Portfolios:The Economy Matters

The authors introduce a macroeconomic factor model, the Eta model, and its various applications. The underlying message regarding the Eta model, be it for replication, wealth maximization, or wealth preservation, is that “the economy matters.” The core feature of the Eta model is its replication methodology, from which portfolios could be customized to fit the risk–reward preferences of investors with respect to the economy. They then evaluate the portfolios against the Dimensional Fund Advisors Core Equity 1 Portfolio, which adopts the methodology promoted by the Fama–French three-factor model.

Beta Measures Market Risk Except When It Doesn’t:Regime-Switching Alpha and Errors in Beta

A graphical comparison of CAPM beta and dual-beta estimates illustrates how different alpha values in up-market and down-market can muddle CAPM beta estimates. CAPM beta statistics from 23,060 investable assets are computed and compared against up- and down-market beta statistics estimated for the same group of assets. The empirical results demonstrate that it is common for the estimated beta to be more extreme in value than either the up-market or downmarket beta for a given asset. That is, estimated beta might be overstating risk, understating risk, or fairly representing risk and without other information, wealth managers and investors won’t know which statement is correct. The use of up-market and down-market alphas and betas can help wealth managers make better decisions about asset risk.

Sector Rotation with Macroeconomic Factors

Implementing sector rotation strategies with a set of low-frequency economic measures, the authors construct long-only sector exchange traded fund (ETF) portfolios that respond differently to the economy via alternative optimization methods, such as mean–variance and low-volatility allocations. These economic-based portfolios, when assessed against the S&P 500 Index and the equal-weighted ETF portfolio, performed relatively well in absolute and relative terms, for the whole period as well as subperiods. This study sheds further light on the effectiveness of economic factors when applied to investment strategies.