CFA Institute Names Top Financial Analysts Journal Articles with Annual Graham and Dodd Awards Best Article of 2014 Suggests a Transparent and Cost-Effective Way to Access Alternative Risk Premiums by Getting Exposure to Risk Factors that Are Uncorrelated with Equities and Do Not Require Unique Skill to Exploit

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New York , , , 23 February 2015

Exotic Beta Revisited,” by Mark Carhart, CFA, Ui-Wing Cheah, CFA, Giorgio De Santis, Harry Farrell, and Robert Litterman, was selected as the best article in the prestigious Graham and Dodd Awards, a CFA Institute program honoring the top Financial Analysts Journal articles each year. The article, published in the September/October 2014 issue of the FAJ, identifies nine exotic beta factors that capture a broad spectrum of uncorrelated risk premiums available in global markets. The authors show that the exotic beta strategy offers a better risk–return profile than risk parity and hedge fund replication. The authors recommend that investors manage their portfolio of alternative risks dynamically and outside the context of their strategic benchmark. They suggest that the exotic beta strategy can be implemented with liquid securities and derivatives, thus offering a cost-effective way to access alternative risk premiums.

Barbara S. Petitt, CFA, editor of the FAJ, commented: “I am pleased that the FAJ Advisory Council and Editorial Board chose to honor this article with the top Graham and Dodd Award. The authors’ work helps us understand how to access and manage multiple risk factors that provide sources of return in portfolios. At a time when many investors are looking for low-cost opportunities to meet their investment objectives, exotic beta investing has a role to play along the spectrum that runs from pure alpha to passive market beta. This article offers important implications in terms of portfolio management and evaluation that will prove useful for investment practitioners.”

The FAJ Advisory Council and Editorial Board also awarded three Graham and Dodd Scroll Awards to recognize additional outstanding articles published last year:

  • Flows, Price Pressure, and Hedge Fund Returns,” by Katja Ahoniemi and Petri Jylhä (September/October 2014): The authors analyzed how capital flows affect hedge fund returns and found that funds with high inflows outperform funds with high outflows during the month of the flows. This instantaneous reaction, combined with feedback trading, gives rise to a cycle, which contributes to the observed persistence in hedge fund performance.
  • The Low-Risk Anomaly: A Decomposition into Micro and Macro Effects,” by Malcolm Baker, Brendan Bradley, and Ryan Taliaferro (March/April 2014): The authors decomposed the low-risk anomaly into micro and macro components. The micro component comes from the selection of low-beta stocks. The macro component comes from the selection of low-beta countries or industries. Both parts contribute to the anomaly, with important implications for the construction of managed-volatility portfolios.
  • Asset Allocation: Risk Models for Alternative Investments,” by Niels Pedersen, Sébastien Page, CFA, and Fei He, CFA (May/June 2014): The authors propose solutions to measuring mark-to-market risk in alternative and illiquid investments. They describe how to estimate risk factor exposures when the available asset return series may be smoothed, owing to the difficulty of obtaining market-based valuations. They show that alternative investments are exposed to many of the same risk factors that drive stock and bond returns.
This year’s Best Perspectives Award for the timeliest and most thought-provoking opinion article was given to William F. Sharpe for his piece “Past, Present, and Future Financial Thinking,” which appeared in the November/December 2014 issue.

The Readers’ Choice Award was given to Ronald Doeswijk, Trevin Lam, CFA, and Laurens Swinkels for their article, “The Global Multi-Asset Market Portfolio, 1959–2012,” which was published in the March/April 2014 issue. The authors composed the invested global multi-asset market portfolio for 1990–2012 by estimating the market capitalization for equities, private equity, real estate, high-yield bonds, emerging market debt, investment-grade credits, government bonds, and inflation-linked bonds. They also used an expanded period (1959–2012) for the main asset categories: equities, real estate, nongovernment bonds, and government bonds.

The FAJ is published six times a year by CFA Institute, the global association of more than 120,000 investment professionals. The journal advances the knowledge and understanding of the practice of investment management through the publication of high-quality, practitioner-relevant research. The award-winning articles may be accessed online at no cost via

Graham and Dodd Award

The Graham and Dodd Awards were created in 1960 to recognize excellence in research and financial writing and to honor Benjamin Graham and David L. Dodd for their enduring contributions to the field of financial analysis. The award-winning articles may be accessed online at no cost via

CFA Institute

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