Tax Matters

Experience Matters: Addressing Five Common Criticisms of Tax Aware Long-Short (TA LS) Strategies

May 27, 2025

This paper addresses five common criticisms of Tax-Aware Long-Short (TA LS) strategies, arguing that most concerns stem from implementation inexperience rather than flaws in the strategy itself. It emphasizes that experienced long-short managers are best positioned to deliver tax-aware benefits without compromising pre-tax alpha.

Equities

Equity Market Focus: Objective Expected Returns

July 31, 2025 - Antti Ilmanen Thomas Maloney

This paper reviews the strengths and weaknesses of using valuation-based metrics like CAPE and CAEY to estimate long-run equity market returns. While these models remain the most robust objective tools available, their predictive power is nuanced and often overstated.

Asset Allocation

Diversifiers Forever

July 31, 2025 - Thomas Maloney Josh Stone

In a portfolio whose investment horizon is forever, do diversifying investments add any value? In this short paper, we illustrate the surprising power of diversification for ultra-long-term investors.

Tax Aware

The Impact of Liquidation Taxes on the Lifecycle Benefits of Tax-Aware Long-Short Strategies

July 31, 2025

While liquidation taxes may seem like a drawback for TA LS strategies, this analysis shows they typically do not erase the significant tax and performance benefits accumulated over time. Thoughtful unwind planning can further enhance after-tax outcomes.

Equities

Equity Market Focus: Interrogating the Historical Data

July 10, 2025 - Antti Ilmanen

We discuss how historical average returns can be useful estimates of future expected returns (only) if expected returns are constant and the sample is unbiased.

Machine Learning

Understanding The Virtue of Complexity

July 10, 2025 - Bryan T. Kelly Semyon Malamud

We respond to recent academic challenges to aspects of the “virtue of complexity” described in our prior research. We provide detailed discussions of how complex models learn in small samples, the roles of “nominal” and “effective” complexity, the unique effects of implicit regularization, and the importance of limits to learning. We then present new empirical and theoretical analyses that expand on KMZ. Finally, we introduce and demonstrate the virtue of ensemble complexity.

Alternative Investing

How Did We Get Here? A Brief History of Expected Returns Formation

June 20, 2025 - Antti Ilmanen Thomas Maloney

We present our history of expectation formation: How have investors formed long-run return expectations over time, and how have academics perceived that investors do it, or ought to do it?

Factor/Style Investing

The Hidden Value of Streaky Returns in Stock Portfolios

June 3, 2025 - Portfolio Solutions Group

Streaky return streams - ones that that can perform well or poorly for extended periods - are challenging for investors to comprehend and stick with. Yet, this very "complexity risk” may be what earns investors an additional risk premium, leading to above average risk-adjusted returns.

Equities

Why Are Bond Investors Contrarian While Equity Investors Extrapolate?

May 27, 2025 - Antti Ilmanen

This article explores the contrast in how investors form long-run expectations in equity and bond markets. It also examines very long run trends in financial market variables and potential implications for the future.

Tax Aware

Are Completion Portfolios Effective for Managing Concentrated Stock Risk?

May 14, 2025 - Stanley Krasner Joseph Liberman Nathan Sosner Marcus Stevens

This paper investigates the most effective ways to manage the risk of concentrated stock positions.