Academics Yuliya Plyakha, Raman Uppal and Grigory Vilkov were named co-winners of the inaugural Standard & Poor's awards recognizing excellence in research in innovative applications of financial market indexes in investment management.
The three will share the $50,000 SPIVA Award, named for the S&P index vs. active methodology, for their research paper, “Why Does an Equal-Weighted Portfolio Outperform Value- and Price-Weighted Portfolios?”
Ms. Plyakha is professor of economics, derivatives and financial engineering, and Mr. Vilkov is EUREX assistant professor of derivatives, both at Goethe University in Frankfurt. Mr. Uppal is professor of finance at EDHEC Business School in London.
In their paper, the authors conclude that even taking into account transaction costs, an “equal-weighted portfolio with monthly rebalancing outperforms the value- and price-weighted portfolios in terms of total mean return” and outperforms measures of risk such as the Sharpe ratio, “even though the equal-weighted portfolio has greater portfolio risk. The total return of the equal-weighted portfolio exceeds that of the value- and price-weighted because the equal-weighted portfolio has both a higher return for bearing systematic risk and a higher alpha” as measured by a model they use.
For her share of the prize's proceeds, Ms. Plyakha said in an e-mail: “I bought a hamster for my son; and I plan to start an equal-weighted fund, so the rest of my money will be the first contribution.”
“As of now, I am not involved with any investment management firm for starting an equal-weighted fund,” Ms. Plyakha said in the e-mail, noting her fund will be at initially at least “only for private investors. Eventually, if I am successful, I will seek institutional clients for my fund.”
“Institutional long-term investors may create an equal-weighted fund of equities to achieve better performance, if they are ready to rebalance it on a regular basis to actually keep the weights equal,” she wrote in the e-mail. “Institutional investors may also construct the fund of stocks maintaining constant weights of the stocks in the portfolio via rebalancing this portfolio regularly, say monthly. This procedure is able to increase the alpha of such a fund relative to the value- and price-weighted portfolios and regardless of the initial proportion of the money invested in each stock.”
A $25,000 second-place SPIVA prize will be shared by George Chacko, associate professor of finance, and Sanjiv Das, professor of finance, both at Santa Clara University's Leavey School of Business, and Rong Fan, director of research at Gifford Fong Associates. They were honored for their research paper, “An Index-Based Measure of Liquidity.”
In it, the authors develop a new measure for liquidity risk using exchange-traded funds, noting that the liquidity shocks of 2008 and 2009 “revealed that measures of liquidity risk being used in most financial institutions turned out to be woefully inadequate.”
S&P, which created the prize last September, plans to issue the awards annually. Research on indexes currently published by S&P or its competitors is eligible.
A panel that included S&P officials and academics selected the winners. Its members were David Blitzer, managing director and chairman of the S&P Index Committee; Srikant Dash, managing director of S&P Indices; Antti Petajisto, visiting assistant professor of finance at the Stern School of Business, New York University; Vijay Singal, J. Gray Ferguson chair professor of finance at the Pamplin College of Business, Virginia Polytechnic Institute and State University; Robert E. Whaley, professor of management and co-director of the Financial Markets Research Center at Vanderbilt University; and Harold Evensky, president of Evensky & Katz LLC, a wealth management firm.