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From Wikipedia, the free encyclopedia

Ivo Welch
Born (1963-10-04) October 4, 1963 (age 55)
ResidenceUS
NationalityAmerican
German
Alma materUniversity of Chicago, PhD 1991
University of Chicago, MBA 1988
Columbia University, BA 1985
Known forFinancial economics
Informational Cascades
Scientific career
FieldsEconomist
InstitutionsUCLA 2011-
Brown University 2004-2011
Yale University 2000-2005
UCLA 1989-2000
Doctoral advisorMilton Harris (thesis advisor)

Ivo Welch, is an American economist and finance academic. He is the J. Fred Weston Professor of Finance at UCLA Anderson.

His research has focused on financial economics and informational cascades.[1] Publications include articles in academic journals[2] and the popular press,[which?] in addition to a Corporate Finance textbook.[3][4] He was previously on the faculty of the Yale School of Management, and Brown University's economics department (Professor of Financial Economics). He is an NBER Research Associate.[5]

Professor Welch is twice a recipient of the Michael Brennan Award. As of 2014, he ranks 50th by downloads on SSRN.[6] In 2006, he ranked 54th on the Web of Science list of "Most-Cited Scientists in Economics & Business";[7] in 2007 (the last year of the rankings), he ranked 57th.[8] He is a Humboldt Foundation 2015 fellow.

He completed his BA in computer science in 1985 at Columbia University and both his MBA and PhD in finance at the University of Chicago.[9]

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  • ✪ Why Not All Index Funds Are Created Equal | Common Sense Investing
  • ✪ Do Markets Overprice Disaster Risk?
  • ✪ In honor of Rick Green

Transcription

I talk a lot about index funds in this video series. I have told you that low-cost index funds are the most sensible way to invest, and that you should do everything that you can to avoid the typical high-fee mutual funds that most Canadians invest in. Great, well that’s easy then. Buy index funds. Where do I sign up? Unfortunately the financial industry does not like making things easy for investors. With the increasing popularity of index funds, index creation has become big business. There are sector index funds, smart beta index funds, equal weighted index funds, and many other things, making it that much more challenging for investors to make sensible investment decisions. I’m Ben Felix, Associate Portfolio Manager at PWL Capital. In this episode of Common Sense Investing, I’m going to tell you why not all index funds are good investments. Let’s start with the basics. An index is a grouping of stocks or bonds that has been designed to represent some part of the stock or bond market. Most of the indexes that you hear about day to day are market capitalization weighted. The S&P 500, an index representing the US market is a cap weighted index. This just means that the weights of the stocks included in the index reflect their relative size. A larger company, like Apple, holds more weight in the S&P 500 than a smaller compay, like Under Armour. You can buy a fund that just buys the stocks in the index. When the index changes, the holdings in the fund change. This all sounds great so far. Low-cost index investing is what it’s all about. One problem for investors is that big name indexes like the S&P 500 only track large cap stocks. Historically, large cap stocks have had lower returns than small cap and mid cap stocks, so excluding those types of stocks from your portfolio could be detrimental. The Center for Research in Security Prices, or CRSP, is another index provider. The CRSP 1 - 10 index is a market cap weighted index covering the total US market. While the S&P 500 offers exposure to 500 stocks covering about 80% of the value of the US market, the CRSP 1 - 10 offers exposure to over 3,500 stocks, covering the vast majority of the value of the US market, including the smaller stocks missed by the S&P 500. An index fund tracking the CRSP 1-10 is what you would call a cap weighted total market index fund. This is the building block for an excellent portfolio. There are total market indexes, and index funds that track them, available for Canadian, US, International, and Emerging market stocks. The MSCI All Country World Index is.. What it sounds like. A total market index covering the whole world. An ETF tracking this index can be found in the Canadian Couch Potato ETF model portfolios. Total market index funds are well-diversified and extremely low-cost to own. That is exactly what you want as an investor. The Canadian Couch Potato ETF model portfolios, which are globally diversified total market index fund portfolios, have a weighted average MER of around 0.15%. That is exactly why fund companies have had to come up with other index products to try and sell you. They need a reason to make you pay higher fees. One way that fund companies have been able to increase the fees on their index funds is by focusing on indexes that track specific sectors. The Horizons MARIJUANA LIFE SCIENCES INDEX ETF captures a sector that many people are interested in right now. It has an MER of 0.75%. There is no rational reason to buy this ETF other than to speculate on a hot sector, but Horizons is cashing in. Another buzz word that fund companies have been using to charge higher fees on index funds is smart beta. Smart beta funds attempt to find characteristics of stocks that seem to have explained higher returns in the past. Some of these factors are extremely well-researched. A 1992 paper by Eugene Fama and Kenneth French, “The Cross-Section of Expected Stock Returns,” pulled together past research to present the idea that a large portion of stock returns could be explained by company size and relative price. In 1997, Mark Carhart, in his study “On Persistence in Mutual Fund Performance,” added to the Fama/French research to show that momentum further explains stock returns. Finally, in 2012, Robert Novy-Marx’s June 2012 paper, “The Other Side of Value: The Gross Profitability Premium,” showed that profitability further explains stocks returns. Together, those characteristics are responsible for the majority of stock returns, so owning more stocks with those characteristics in your portfolio might be a good idea. Fund companies have tried to build products around this research, but the execution has not always been great. In a 2016 blog post, my PWL colleague Justin Bender analyzed the iShares Mutifactor ETFs, ETFs tracking indexes that target some of the well-researched factors. Justin found that they did not deliver on their promise of factor exposure - disappointing considering their relatively high cost compared to a total market ETF. There are other fund companies, like Dimensional Fund Advisors, with a long history of capturing the well-researched factors. I recommend products from Dimensional Fund Advisors in the portfolios that I oversee. I keep saying well-researched factors because there are companies building indexes based on factors that are not as well-researched. They may be based on bad research, bad data, or data mining. In their 2014 paper, “Long Term Capital Budgeting,” authors Yaron Levi and Ivo Welch examined 600 factors from both the academic and practitioner literature. Not all of these factors would be expected to give you a better investment outcome, but they do give fund companies a reason to charge you a higher fee. For most investors, a portfolio of market cap weighted total market index funds is all that you need. Many of the other index fund products out there claiming to track some special index are gimmicks designed to convince you to pay an extra fee. Thanks for watching. My name is Ben Felix of PWL Capital and this is Common Sense Investing. I’ll be talking about a lot more common sense investing topics in this series, so subscribe, and click the bell for updates. I’d also love to read your thoughts and questions about this video in the comments.

References

  1. ^ Sushil Bikhchandani, David Hirshleifer & Ivo Welch (1992). "A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades". Journal of Political Economy. 100 (5): 992–1026. CiteSeerX 10.1.1.295.578. doi:10.1086/261849. JSTOR 2138632.CS1 maint: Uses authors parameter (link)
  2. ^ "Ivo Welch at IDEAS". IDEAS. Retrieved August 2013. Check date values in: |accessdate= (help)
  3. ^ Ivo Welch (October 6, 2008). Corporate Finance: An Introduction (United States ed.). Prentice Hall. p. 1128. ISBN 978-0321277992. (Out of print.)
  4. ^ Welch, Ivo (2011). Corporate Finance (2nd ed.). Ivo Welch. ISBN 978-0984004959.
  5. ^ Ivo Welch, nber.org
  6. ^ SSRN Author Page
  7. ^ "Most-Cited Scientists in Economics & Business". Web of Science. 2006.
  8. ^ "Most-Cited Scientists in Economics & Business". Web of Science. 2007.
  9. ^ Amazon.com Editorial Reviews (2008). "About the Author (Ivo Welch)". Corporate Finance: An Introduction. ISBN 978-0321277992.

External links


This page was last edited on 6 March 2019, at 12:59
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