On the Possible Impact of a Commodity Transaction Tax on India’s Commodity Derivatives: An Empirical Study
Sanjay Sehgal and Wasim Ahmad

In this article, the authors examine the potential effects of a Commodity Transaction Tax (CTT) on commodity and futures markets. They investigate the relationship between bid-ask spreads, trading activity, and intra-day volatility using futures data on five commodities (gold, copper, crude oil, cardamom, and refined soya oil) from 2006 to 2010. The empirical results suggest that while higher transaction costs may decrease trading activity, they may also increase price volatility. Therefore, policy makers should pay close attention to the possibility of distortions in market microstructure should a CTT be imposed in India.

Why is the Shiller CAPE So High?
www.philosophicaleconomics.com

This blog post provides a detailed discussion of why the current levels of CAPE might be so high. One reason is that stock prices are currently high based on historical standards. However, as the post explains, there may also be other factors at work.

CAPE Around the World: The Relationship Between Risk and Return
Joachim Klement and Oliver Dettmann

In this article, the authors investigate the cyclically adjusted PE-ratio (CAPE) for 38 countries around the world. Their analysis suggests that there are significant regional differences in valuation and long-term equity market outlook. While the overall outlook for equity markets over the next five years is very positive, there are some countries - in particular the United States - where risks are clearly elevated. The authors analyze the relationship between CAPE and future drawdowns and find that CAPE predicts future returns and risks quite reliably.

Introduction and Table of Contents
Hossein Kazemi

Editor's Letter: Financial Innovation: Old Wine in New Bottles?

Crowdfunding: A Threat or Opportunity for University Research Funding?
Rachel F. Baskerville and Carolyn J. Cordery

Crowdfunding is a disruptive technology of financial intermediation that may be applied in university research settings. The question addressed in this study is: Does crowdfunding represent a threat or an opportunity to more traditional research funding sources for the university sector? The article reviews recent research in the evolution of crowdfunding, assesses the legislation governing this new form of financing, and examines select university crowdfunding sites that have been used to generate funds for staff research and student projects. The study concludes that the Ivory Towers are alive and well, but crowdfunding has traction in the marketplace; further research on this phenomenon is encouraged.

An Alternative Take on Alternatives: Not Just Adding a Slice, But Rethinking the Whole Pie
Peter Chiappinelli, CAIA

At GMO, we have a deep appreciation for alternative asset classes. We manage nearly $10 billion in hedge funds and have an experienced team offering timberland and agriculture investments. Yet we are nervous about the increasingly uncritical embrace of all things alternative. Just as with traditional assets, investors must always ask the key question: Is the asset priced well? Rather than embracing alternative assets, we believe investors should embrace an alternative way of thinking about the investment equation.

The IPD Global Intel Report
Max Arkey

Unlisted real estate in Houston provided investors with an annualized return of 10.4% over the past 10 years, outperforming other major U.S.- cities over the same period as well as other major asset classes. By Q4 2014 Houston's performance had slipped below the IPD US Quarterly Index for unlisted property. This paralleled a slide in oil prices, a commodity closely tied to the city's economy. Houston property owners may be left to wonder, how secure is my investment here, especially my income stream? In this issue, we mine MSCI's IPD Rental Information Service (IRIS) to investigate.

VC-PE Index
Mike Nugent, Mike Roth

Through the first three quarters of 2014, the private equity industry looks to be on pace to have a strong year of distributions. This could be an indication that the “smart money” thinks now is a good time to look at locking in gains and cashing out.

IR&M Momentum Monitor
Alexander Ineichen, CAIA

Risk is often defined as exposure to change. Spotting change, therefore, is important. There are essentially three approaches to change: 1. Displaying complete ignorance, 2. Having a wild guess as to what it means, or 3. Measuring it in a systematic fashion with an applicable methodology and adapting to it. The author recommends choice number three. Momentum can be perceived as a philosophy. The author discusses the Momentum Monitor (MOM) and recommends it as a risk management tool. If risk is defined as “exposure to change,” then one ought to spot the change.

Reducing Your Reliance on Risk Models: Another Look at Active Share
Michael Hunstad

Risk models play a key role in quantitative equity management. While they are generally good predictors of ex-post portfolio volatility, at times, these models are subject to significant misspecification. In this article, the authors demonstrate that for any given risk model misspecification, the width of a portfolio’s confidence interval is a positive function of its active share. Monte Carlo simulation shows that these confidence intervals grow nonlinearly with active share. Thus, the higher a portfolio’s active share, the less confidence we have in its risk measurements. Understanding these dynamics will help to generate new views on risk management practices.