The Impact of Jacobs Levy Concepts on Investment Theory and Practice

The most gratifying aspect of our work at Jacobs Levy is the successful management of client portfolios, using the insights from our proprietary research. But it has also been gratifying to see the impact that the concepts underlying this research have had on investment theory and practice.

Our articles have won awards from the Financial Analysts Journal, The Journal of Portfolio Management and The Journal of Investing and been translated for the Japanese Society of Security Analysts. We have presented our concepts at major industry conferences and seminars, including the CFA Institute (formerly Association for Investment Management and Research), the University of California-Berkeley Program in Finance (BPF) and the Institute for Quantitative Research in Finance (Q Group). Many of our works have become required reading for the CFA program and for M.B.A. courses. They have received favorable coverage in the pages of The Wall Street Journal, Institutional Investor and Pensions & Investments.

The worldwide recognition accorded Jacobs Levy’s equity research is evident in the industry’s wide adoption of many of our terms and concepts, including “market complexity,” “disentangling,” “pure returns,” the “law of one alpha,” “integrated long-short optimization,” “trimability,” and “Enhanced Active Equity 120-20 and 200-100 Strategies.” It is also evident in the numerous citations of our work to be found in consultant publications, Wall Street research reports, academic and practitioner articles, and investment texts, as well as newspaper and industry press coverage, conference presentations, and awards. A sample of these is provided below.

Consultants

·   SEI: “Understanding Top-Quartile Performance—Part II,” by Gilbert L. Beebower, in Performance Measurement: Setting the Standards, Interpreting the Numbers, Financial Analysts Federation and Institute of Chartered Financial Analysts, 1989.
·   Towers Perrin: “Market-Neutral Long-Short Equity Strategies,” by Naozer D. Dadachanji, December 1994.
·   Frank Russell: “The Information Ratio: More Than You Ever Wanted to Know About One Performance Measure,” by Thomas H. Goodwin, Russell Research Commentary, November 1997 (and Financial Analysts Journal, July/August 1998).
·   Frank Russell: “Quantitative Research is King at Jacobs Levy,” Portfolio, July 1998.
·   Mercer: “An Overview of Long-Short Equity Investing,” by Steven F. Freed, November 29, 1999.
·   BARRA RogersCasey: “Market Neutral Investing,” BARRA RogersCasey Research Insights, 2000.
·   Frank Russell: “The Long and Short of Market-Neutral Investing,” by Sheena Spear and Steve Wiltshire, Russell Research Commentary, July 2000.
·   Ennis Knupp: “The Case for Whole-Stock Portfolios,” by Richard M. Ennis, Journal of Portfolio Management, Spring 2001.
·   Capital Market Risk Advisors: Hedge Fund Risk Transparency: Unraveling the Complex and Controversial Debate, by Leslie Rahl, Risk Books, London, 2003.
·   Ennis Knupp: “Can Public Funds Compete?” by Richard M. Ennis, Journal of Investment Consulting, Winter 2003/2004.

Investment Banking and Brokerage

·   Goldman Sachs: “Portfolio Strategy: Stock Selection,” by Robert C. Jones, August 31, 1988.
·   Kidder Peabody: “Equity Research: Quantitative Asset Allocation,” by George H. Boyd III, September 20, 1988.
·   Merrill Lynch: “Quantitative Viewpoint: Torpedo Ahead!,” by Richard Bernstein and Charles L. Clough, Jr., December 20, 1988.
·   Prudential-Bache: “Quantum,” by Melissa R. Brown, April 1989.
·   SBC Warburg: “A Simple Multi-Factor Model of the New Zealand Equity Market,” by Ian Nield, August 1997.
·   Merrill Lynch: “Skill and Turnover: Requirements for Investment Performance,” by Jason Glazier and Kathryn Wilkens, Journal of Alternative Investments, Summer 1999.
·   Chase Manhattan: Physics of Finance, by Kirill Ilinski, John Wiley, West Sussex, UK, 2001.
·   UBS Warburg: “Who’s Long? Market-Neutral versus Long/Short Equity,” by Alexander M. Ineichen, Journal of Alternative Investments, Spring 2002.
·   Morgan Stanley: “Using Cointegration to Hedge and Trade International Equities,” by A. Neil Burgess, in Christian Dunis, Jason Laws, and Patrick Naim, Eds., Applied Quantitative Methods for Trading and Investment, Wiley/Finance, West Sussex, UK, 2003.
·   Morgan Stanley: “Short-Extension Portfolios: An Exploration of the 120/20 Concept,” by Martin Leibowitz and Anthony Bova, January 18, 2006.

Investment Systems Providers

·   I/B/E/S: “New Study Finds I/B/E/S is a Key to Superior Returns,” 1988.
·   BARRA: “Advances in Equity Valuation Models,” by Peter Muller, in Investing Worldwide III, Association for Investment Management and Research and International Society of Financial Analysts, February 23, 1992.
·   Vestek Systems: “Multifactor System,” 1993.
·   Plexus: “Ten Myths and Twenty Years of Betas,” by Wayne H. Wagner, Journal of Portfolio Management, Fall 1994.

Academics

·   Lawrence H. Summers, Harvard University: “Predicting Expected Return,” in Quantifying the Market Risk Premium Phenomenon for Investment Decision Making, Institute of Chartered Financial Analysts, Charlottesville, VA, 1989.
·   Edward M. Miller, University of New Orleans: “Divergence of Opinion, Short Selling, and the Role of the Marginal Investor,” in Managing Institutional Assets, Harper & Row, New York, 1990.
·   Jack Clark Francis, Bernard M. Baruch College, City University of New York: Investments: Analysis and Management, McGraw-Hill, New York, 1991.
·   Simon M. Keane, Glasgow University: “Paradox in the Current Crisis in Efficient Market Theory,” Journal of Portfolio Management, Winter 1991.
·   William T. Ziemba, University of British Columbia, and Sandra L. Schwartz, Simon Fraser University: Invest Japan, Probus, Chicago, 1992.
·   Frank J. Fabozzi, Sloan School of Management, MIT, and Franco Modigliani, Sloan School of Management, MIT: Capital Markets: Institutions and Instruments, Prentice Hall, Englewood Cliffs, NJ, 1992.
·   Dennis R. Capozza, University of Michigan, and William Ziemba, University of British Columbia: “Design of Anomalies Funds: Concepts and Experience,” in John B. Guerard, Jr. and Mustafa N. Gültekin, Eds., Handbook of Security Analyst Forecasting and Asset Allocation, JAI Press, Inc., Greenwich, CT, 1993.
·   Gabriel Hawawini, INSEAD, and  Donald B. Keim, Wharton School, University of Pennsylvania: “On the Predictability of Common Stock Returns: World-Wide Evidence,” in R.A. Jarrow, V. Maksimovic and W.T. Ziemba, Eds., Handbooks in Operations Research and Management Science, Vol. 9, Elsevier Science, Amsterdam, 1995.
·   Frank J. Fabozzi, School of Management, Yale University: Investment Management, Prentice-Hall, Englewood Cliffs, NJ, 1995.
·   William F. Sharpe, Stanford University, Gordon J. Alexander, University of Minnesota, and Jeffrey V. Bailey, Richards & Tierney, Inc.: Investments, fifth edition, Prentice Hall, Englewood Cliffs, NJ, 1995.
·   Robert G. Bowman, University of Auckland, and John Buchanan, University of Waikato: “The Efficient Market Hypothesis-A Discussion on Institutional, Agency and Behavioural Issues,” Australian Journal of Management, December 1995.
·   Aswath Damodaran, Leonard N. Stern School of Business, NYU: Investment Valuation: Tools and techniques for determining the value of any asset, John Wiley, New York, 1996.
·   Donald B. Keim, Wharton School, University of Pennsylvania: “The Cross Section of Stock Returns: A Synthesis of the Evidence and Explanations,” Presentation to the Institute for Quantitative Research in Finance (Q Group), October 22, 1996.
·   Edward M. Miller, University of New Orleans: “Why the Low Returns to Beta and Other Forms of Risk?” Journal of Portfolio Management, Winter 2001.
·   Paul Usman Ali, University of Melbourne, and Martin L. Gold, University of Wollongong: “An Overview of ‘Portable Alpha’ Strategies, with Practical Guidance for Fiduciaries and Some Comments on the Prudent Investor Rule,” Company and Securities Law Journal, May 2001.
·   Frank J. Fabozzi, School of Management, Yale University, and Harry M. Markowitz, Nobel Laureate, Eds.: The Theory & Practice of Investment Management, John Wiley, Hoboken, NJ, 2002.
·  Aswath Damodaran, Leonard N. Stern School of Business, NYU: Investment Philosophies: Successful Strategies and the Investors Who Made Them Work, John Wiley, Hoboken, NJ, 2003.
·  Michel Fleuriet, Wharton School, University of Pennsylvania: Finance, A Fine Art, John Wiley, West Sussex, UK,  2003.
·  Joseph L. McCauley, University of Houston: Dynamics of Markets: Econophysics and Finance, Cambridge University Press, Cambridge, UK, 2004.
·  Francois-Serge Lhabitant, EDHEC Business School (France) and University of Lausanne (Switzerland): Hedge Funds: Quantitative Insights, Wiley/Finance, West Sussex, UK, 2004.
·  Edward M. Miller, University of New Orleans: “Restrictions on Short Selling and Exploitable Opportunities for Investors,” and “Implications of Short Selling and Divergence of Opinion for Investment Strategy,” in Frank J. Fabozzi, Ed., Short Selling: Strategies, Risks, and Rewards, John Wiley, Hoboken, NJ, 2004.
·  Steven L. Jones, Kelley School of Business, Indiana University, and Glen Larsen, Kelley School of Business, Indiana University: “How Short Selling Expands the Investment Opportunity Set and Improves Upon Potential Portfolio Efficiency,” in Frank J. Fabozzi, Ed., Short Selling: Strategies, Risks, and Rewards, John Wiley & Sons, Hoboken, NJ, 2004. 
·  Steve Hogan, Credit Suisse First Boston, Robert Jarrow, Johnson Graduate School of Management, Cornell University, Melvyn Teo, Singapore Management University, School of Business, and Mitch Warachka, FDO Partners: “Testing Market Efficiency Using Statistical Arbitrage with Applications to Momentum and Value Strategies,“ Journal of Financial Economics, September 2004.
·  Christopher J. Adcock, University of Sheffield (UK): “Estimating UK Factor Models Using the Multivariate Skew Normal Distribution,” in John Knight and Stephen Satchell, Eds., Linear Factor Models in Finance, Elsevier Butterworth-Heinemann, Burlington, MA, 2005.
·  Harry M. Markowitz, Research Professor, The Rady School, University of California at San Diego: “Market Efficiency: A Theoretical Distinction and So What?” Financial Analysts Journal, September/October 2005.
·  Glen A. Larsen, Jr. and Steven L. Jones, Kelley School of Business, Indiana University: “Implications for Enhanced Portfolio Performance Based on the Information Content of Short Interest,” Journal of Financial Education, Winter 2006.