Volatility Wisdom of Social Media Crowds

"Information contained in the volatility sentiment extracted from broader social media data sources can be used to create profitable investment strategies for stock market volatility ... A large database of tweets contains useful information about future stock market volatility.  [Social Anomaly Score strategies] are able to outperform a benchmark by harnessing the volatility wisdom of social media crowds."

KARAGOZOGLU, A. K., & FABOZZI, F. J. (2017). Volatility Wisdom of Social Media Crowds. Journal Of Portfolio Management, 43(2), 136-151.

Currency Crowdedness Generated by Global Bond Funds

"Bond managers rely on currency beta strategies. Both the G10 and Global carry and the value strategy are preferred by professional bond investors... Bond managers [should] pay closer attention to the return attribution of ... currency management, [because] global bond fund returns can be related to currency-risk factors, [and] alpha-generating currency management could improve diversification and the risk-return ratio in a global bond portfolio."

KONSTANTINOV, G. (2017). Currency Crowdedness Generated by Global Bond Funds. Journal Of Portfolio Management, 43(2), 123-135.

The Bad Arithmetic of Active Management

"Although the average return of active managers cannot be any different than the return of the total market portfolio (and will be less, due to fees and expenses), that does not mean that active managers do not add value for investors."

JACOBSEN, B. J. (2017). The Bad Arithmetic of Active Management. Journal Of Portfolio Management, 43(2), 115-122.

Effect of Booms and Busts on the Sharpe Ratio

The Sharpe ratio is inversely related to skewness; since returns subject to disasters are
negatively skewed and returns subject to booms are positively skewed, hedge funds who sell insurance by shorting options typically exhibit a higher Sharpe ratio than those who buy options.

BEDNAREK, Z., & PATEL, P. (2017). Effect of Booms and Busts on the Sharpe Ratio. Journal Of Portfolio Management, 43(2), 105-114.

Quantifying Backtest Overfitting in Alternative Beta Strategies

Alternative beta strategies often exhibit high performance in hypothetical backtests, but their live actual performance can be substantially less than projected by investment banks (most especially in equity value strategies).  "Factor fishing" and data mining allow the construction of products that perform well in historical backtests, but not as well live.

SUHONEN, A., LENNKH, M., & PEREZ, F. (2017). Quantifying Backtest Overfitting in Alternative Beta Strategies. Journal Of Portfolio Management, 43(2), 90-104.

The Moral Hazard Problem in Hedge Funds: A Study of Commodity Trading Advisors

Hedge Fund Managers with performance-based fees are likely to take on more risk when they have discretionary authority over investments in a favorable market environment, because they are more concerned with fee income than survival.  This is an implicit cost to investors in the fund, because more risk is taken without additional return.  To combat this problem, investors can require managers to have a sizable stake in the fund or incorporate a claw-back provision in the fee calculation.

CAI, L., CHENG, J., MARAT, M. (2017). Moral Hazard Problem in Hedge Funds: A Study of Commodity Trading Advisors (CTAs). Journal Of Portfolio Management, 43(2), 77-89. 

Defined Contribution Retirement Plans Should Look and Feel More Like Defined Benefit Plans

The effectiveness of Defined Contribution plans can be improved by increasing the participant savings rate, allowing for longevity-risk pooling, employing professional return/risk management, reducing administrative costs, and optimizing withdrawal timing/amounts.

ILMANEN, A., KABILLER, D. G., SIEGEL, L. B., & SULLIVAN, R. N. (2017). Defined Contribution Retirement Plans Should Look and Feel More Like Defined Benefit Plans. Journal Of Portfolio Management, 43(2), 61-76.