Joel Rentzler

Professionally Managed, Publicly Traded Commodity Funds

Investment in professionally-managed, publicly-traded commodity funds has grown rapidly in recent years. This is the first comprehensive study of the performance of these funds. It is found that randomly selected funds offer neither an attractive alternative to bonds nor a profitable addition to a portfolio of stocks and bonds. Furthermore, past performance of these funds offers very little information about future performance. The findings may be explained by the large transactions costs incurred by these funds and their primary reliance on technical analysis. Copyright 1987 by the University of Chicago.

A simple examination of the empirical relationship between dividend yields and deviations from the CAPM

Abstract Several papers have been published in recent years dealing with both the theoretical and the empirical impact of dividend yields on security returns. Dividends have been postulated as affecting stock returns because of tax effects, agency costs and the Wealth Transfer Hypothesis. In this paper we perform a purely empirical examination of whether and to what extent deviations from the zero beta form of the CAPM are explained by divident yields. The paper demonstrates that dividend yield has a large and statistically significant impact on return above and beyond that explained by the zero beta form of the CAPM. This is consistent with the findings of Litzenberger and Ramaswamy. In addition our results are consistent with the findings of small firm effects.

New Public Offerings, Information, and Investor Rationality: The Case of Publicly Offered Commodity Funds

Publicly-traded commodity funds have been poor investment vehicles, yet new funds are a fast-growing part of the investment scene. In this article, the authors show that the information provided to investors is significantly biased upward and that true performance cannot be determined by the information most investors see. Thus, investment in commodity funds, given the information set, is rational. While the authors limit the study to commodity funds, the same should hold for other limited partnerships, such as real estate, oil, and gas. Copyright 1989 by the University of Chicago.

Trading Strategy on EVA and MVA: Are They Reliable Indicators of Future Stock Performance?

The positive risk-adjusted return of the winner group is found when adjusted-MVA is designated as the ranking variable. This return is higher than the one in the loser group. However, both returns are at an insignificant level. The p-values for each factor loading as well as the F-values are all significant, while the adjusted R-squares range between 0.5578–0.8801. Hence, the authors suspect that the adjusted-MVA variable may be a weak alternative indicator of earnings momentum. At the same time, the authors conclude that the Fama-French model successfully captures the return components.

The Effect of Value Estimation Errors on Portfolio Growth Rates

This article analyzes the impact of value estimation errors on portfolios’ growth rates and relative growth rates for several portfolio weighting methods. In contrast to previous articles, this one addresses the effect of estimation errors on portfolio growth rates due to increased return volatility. The portfolio weighting methods examined include capitalization weights, estimation error independent weights, Fundamental weights, and Diversity weights. The article provides theoretical support, in the context of estimation error, for the empirical findings that many non-capitalization weighted portfolios’ returns beat the market’s capitalization-weighted portfolio return over time. It also provides a theory for the size effect.

Long-Short Strategies May Not Be Factor-Neutral

This is an examination of three long-short investment strategies that may be used by investment managers. The factor strategy is long in small size and high book-equity/market equity (BE/ME) stocks and short in large size and low BE/ME stocks. The relative return strategy is long in stocks with the highest past returns and short in stocks with the lowest past returns. The relative earnings surprise strategy is long in stocks with the greatest (positive) earnings surprise and short in stocks with the worst earnings surprise. Only the relative return and relative earnings surprise strategies provide significant risk-adjusted returns; none of the three strategies is size and BE/ME-neutral. This suggests that other simple long-short strategies probably are not size and BE/ME-neutral. Investors should not equate long/short portfolios with the absence of systematic risk.