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Research Papers

Our experts have published extensively in peer-reviewed journals. Pre-publication versions of these papers plus other working papers are available below.

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Displaying 10 out of 16 results

Impact of Zoom on FINRA Claimants

By: Craig McCann, Chuan Qin

SLCG presents a new study on the impacts that Zoom and other virtual meeting platforms have on the process of FINRA hearings, citing evidence that the newly updated process has a negative effect on those who are claiming.

The Fall of Willow

By: Geng Deng and Craig McCann

From May 8, 2000 until June 30, 2007, the UBS Willow Fund was invested in distressed obligations with offsetting but smaller cash and synthetic short debt positions through credit default swaps (CDS). After June 2007 the Fund dramatically increased its purchases of CDS and became massively short distressed debt. Investors in the Fund lost $278.4 million during this second period from June 2007 to December 2012 and the Willow Fund was liquidated in 2013.

The Willow Fund understated the risk...

Robust Portfolio Optimization with VaR Adjusted Sharpe Ratio

By: Geng Deng, Tim Dulaney, Craig McCann, and Olivia Wang

We propose a robust portfolio optimization approach based on Value-at-Risk (VaR) adjusted Sharpe ratios. Traditional Sharpe ratio estimates using a limited series of historical returns are subject to estimation errors. Portfolio optimization based on traditional Sharpe ratios ignores this uncertainty and, as a result, is not robust. In this paper, we propose a robust portfolio optimization model that selects the portfolio with the largest worse-case-scenario Sharpe ratio within a given...

Are VIX Futures ETPs Effective Hedges?

By: Geng Deng, Craig McCann, and Olivia Wang

Exchange-traded products (ETPs) linked to futures contracts on the CBOE S&P 500 Volatility Index (VIX) have grown in volume and assets under management in recent years, in part because of their perceived potential to hedge against stock market losses.

In this paper we study whether VIX-related ETPs can effectively hedge a portfolio of stocks. We find that while the VIX increases when large stock market losses occur, ETPs which track short term VIX futures indices are not effective hedges...

Optimizing Portfolio Liquidation Under Risk-Based Margin Requirements

By: Geng Deng, Tim Dulaney, and Craig McCann

This paper addresses a situation wherein a retail investor must liquidate positions in her portfolio -- consisting of assets and European options on those assets -- to meet a margin call and wishes to do so with the least disruption to her portfolio. We address the problem by first generalizing the usual risk-based haircuts methodology of determining the portfolio margin requirement given the current positions of a portfolio. We derive first and second-order analytic estimates for the margin...

Valuing Partial Interests in Trusts

By: Geng Deng, Tim Husson, and Craig McCann

The financial interests of a trust's beneficiaries are often diametrically opposed and conflict among trust beneficiaries is common. Although applicable law requires that trustees adhere to lofty standards of 'good faith' and 'fair dealing' they must make tangible, specific decisions, and sometimes under circumstances in which the settlor's expectations regarding investments and distributions as set forth in the trust document are unclear. Traditional methods for valuing partial interests in...

What Does a Mutual Fund's Term Tell Investors?

By: Geng Deng, Craig McCann, and Edward O'Neal

In a previous article, we highlighted a flaw in the average credit quality statistic frequently reported by bond mutual funds. That statistic understates the credit risk in bond portfolios if the portfolios contain bonds of disperse credit ratings. In this article we address a similar problem with bond mutual funds' reporting of the average term of their portfolios. The somewhat ambiguous nature of this statistic provides an opportunity for portfolio managers to significantly increase the...

What Does a Mutual Fund's Average Credit Quality Tell Investors?

By: Geng Deng, Craig McCann, and Edward O'Neal

The SLCG study explains that the Average Credit Quality statistic as typically calculated by the mutual fund companies and by Morningstar significantly overstates bond mutual funds' true credit quality. This statistic is based on Standard & Poor's and Moody's assessment of the credit risk of the individual bonds in the portfolio and is reported to mutual fund investors using the familiar letter scale for rating the credit risk of bonds.

The study concludes that, for instance, funds that...

Concentrated Investments, Uncompensated Risk and Hedging Strategies

By: Craig McCann and Dengpan Luo

In this paper, Dr. McCann and Dr. Luo explore the risk of holding concentrated investments and explain and evaluate risk management strategies.

The Use of Leveraged Investments to Diversify a Concentrated Position

By: Craig McCann and Dengpan Luo

Brokerage firms recently recommended that investors holding a concentrated position in a single stock borrow and invest in a portfolio of additional stocks to reduce risk. Dr. McCann and Dr. Luo demonstrate that this strategy to reduce risk predictably did exactly the opposite.

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