Providing pension funds with key insights into their liabilities hedge mismatch and other factor exposures
Listed real estate has come of age as a significant asset class in its own right. Its size and diversity have expanded considerably over the last 15 years, although many investors have yet to accept this. Despite the worldwide growth in real estate investment trust (REIT) regimes and research on the potential benefits, many still favour investing in real estate directly or in non-listed investment vehicles.
ABSTRACT Professor Robert Shiller’s Cyclically Adjusted Price-Earnings (CAPE) Ratio has proven treturns in the United States and some global markets. In recent years, though, it has been criticized for being overly pessimistic about the prospects for equity returns, its lack of robustness to distortions in corporate earnings, and for overstating the predictability of returns at long horizons on account of overlapping observations and endogeneity, particularly when estimated using Ordinary Least Squares (OLS). In this paper, we explore various definitions of CAPE, present new construction techniques that make it robust to a wide range of accounting and index construction biases as well as to changing fundamentals in equity markets, and evaluate its forecasts using econometric methods that account for endogeneity and overlapping observations. We show that most of these enhancements have a minimal impact on CAPE for the US equity market, but can prove useful in smaller markets and in markets that have experienced significant dislocations. We also show that certain accounting flow variables such as cash flow and revenues can be useful supplements to earnings and cyclically adjusted earnings.
OVERVIEW Institutional investor portfolios typically hold a signifi cant allocation of foreign currency denominated assets. Left unmanaged, this currency exposure functions like a buy-and-hold strategy which receives little or no risk premium and adds unwanted volatility to portfolio returns. In this paper, we discuss the variety of solutions to address foreign currency exposures such as using passive currency management choices or selecting from the different active currency management solutions available.