Articles I’m reading
AQR Capital Management published a paper “Honey, the Fed Shrunk the Equity Premium” where they explore the implications of higher interest rates on asset markets and how asset allocation may be affected.
AQR conducted an empirical study across fixed income, equities and alternative investments and compared those historical patterns to yield-based returns as of mid-2023. They came to the following conclusion:
One result is clear: equity markets have earned slimmer excess returns when the cash baseline is higher. We discuss the role of so-called “cash-plus” liquid alternative strategies — overlooked beneficiaries of higher cash rates — and conclude with a simple allocation case study. In a higher-rate world that investors haven’t seen for many years, diversification away from equities may prove to be especially valuable.
Morningstar published an article on the use of cash in an investor’s portfolio. They examined the pros and cons of cash as an asset class, and explored the various options available for investors....
