Breaking Down Stock Market Returns

Forecasting stock market returns… isn’t that the goal of every investor? Many models exist to fulfill that task: some are simple, others more complex. However, an important aspect of any model is the components it includes. Moreover, model results are preferably easy to analyze, so these components should be simple to understand and easily accessible. In this article, I will introduce the Grinold-Kroner model, which can be used to break down and estimate stock market returns.

August 22, 2023

Volatility Term Structure

Volatility is a significant force in financial markets. The CBOE Volatility Index (VIX) is the most well- known measure of market sentiment. The introduction of VIX futures in 2004 enabled market participants to express their estimates of market volatility at various expiration dates.1 This allowed the development of a term structure curve for volatility. In this article, I introduce the topic of the volatility term structure and analyze how it can be used.

August 18, 2023

Stock Market Volatility Seasonality

Despite the headwinds expected in 2023, this year has been great for the stock market, with the S&P 500 posting a year-to-date return of 14.28%.1 Still, there were a number of events that could have derailed the stock market this year, from the U.S. regional banking crisis in March to the debt ceiling dispute that was settled in June. Despite all this, there was no significant increase in volatility as the VIX index did not rise above 27.

July 26, 2023

Periodic Table of Investment Returns

The periodic table of the elements is a fundamental concept in chemistry. Just as the chemical elements form the basis for many applications in chemistry, so do asset classes in finance. Understanding the different asset classes that exist in the financial world is key to build a solid, diversified portfolio. In this article I will introduce the concept of the Periodic Table of Investment Returns and its importance for the analysis of diversification.

July 11, 2023

First Half Recap

Global equity markets surprised investors in a positive away, with the MSCI ACWI Index posting a 13% return in the first half of the year. 1 In the US, the NASDAQ 100 posted its highest ever first-half return of 39%. 2 After a difficult 2022, expectations of a recession put investors on the backfoot for 2023, but the economy remained resilient and equity markets recovered. Now, recession fears linger and hawkish monetary policy by major central banks casts doubt on performance in the second half of the year.