The Year’s Best Financial Writing: Graham and Dodd Awards of Excellence for 2012

The Graham and Dodd Awards, established by the Financial Analysts Journal in 1960, recognize excellence in financial writing and honor Benjamin Graham and David L. Dodd for their enduring contributions to the field of financial analysis.

Top Award

• “Exchange-Traded Funds, Market Structure, and the Flash Crash” by Ananth Madhavan: The author analyzes the relationship between market structure and the flash crash. The proliferation of trading venues has resulted in a market that is more fragmented than ever. The author constructs measures to capture fragmentation and shows that they are important in explaining extreme price movements. New market structure reforms should help mitigate such market disruptions in the future but have not eliminated the possibility of another flash crash, albeit with a different catalyst.

Scroll Awards

• “Demographic Changes, Financial Markets, and the Economy” by Robert D. Arnott and Denis B. Chaves: Using a large sample of countries and 60 years of data, the authors found a strong and intuitive link between demographic transitions and both GDP growth and capital market returns. Unlike previous researchers, who used ad hoc and restrictive demographic variables, the authors imposed a smooth and parsimonious polynomial curve across all age groups. They also performed robustness checks and produced forecasts for the coming decade, with all the necessary caveats. (A free webinar related to this study is also available.)
• “Is There a Cost to Transparency?” by Rajesh K. Aggarwal and Philippe Jorion: Conducting the first direct tests for the cost of private transparency, the authors examined whether a willingness to offer transparency to investors is beneficial or costly in terms of hedge fund returns. Transparency is implicit when a fund accepts managed accounts because such accounts are directly controlled by investors. Overall, the authors found no evidence that transparency harms fund returns. They also found no support for concerns that managers offering transparency suffer from selection bias.
• “Will My Risk Parity Strategy Outperform?” by Robert M. Anderson, Stephen W. Bianchi, CFA, and Lisa R. Goldberg: The authors gauged the return-generating potential of four investment strategies: value weighted, 60/40 fixed mix, and unlevered and levered risk parity. They report three main findings: (1) Even over periods lasting decades, the start and end dates of a backtest can have a material effect on results; (2) transaction costs can reverse ranking, especially if leverage is used; and (3) a statistically significant return premium does not guarantee outperformance over reasonable investment horizons.
• “The Liquidity Style of Mutual Funds” by Thomas M. Idzorek, CFA, James X. Xiong, CFA, and Roger G. Ibbotson: Recent literature indicates that a liquidity investment style — the process of investing in less liquid stocks — has led to excess returns relative to size and value. The authors examined whether this style, previously documented at the security level, can be uncovered at the mutual fund level. Across a wide range of mutual fund categories, they found that, on average, mutual funds that held less liquid stocks significantly outperformed those that held more liquid stocks.

Best Perspectives Award

• “An Experienced View on Markets and Investing” by Eugene F. Fama: At the 65th CFA Institute Annual Conference in Chicago, Robert Litterman interviewed Eugene F. Fama to elicit his views on financial markets and investing.

Readers′ Choice Award

• “Two Key Concepts for Wealth Management and Beyond” by William Reichenstein, CFA, Stephen Horan, CFA, CIPM, and William W. Jennings, CFA: Asset allocation is profoundly influenced by at least two underappreciated concepts. First, tax-deferred accounts — for example, 401(k)s — are like partnerships in which the investor owns (1 – t_n) of the partnership principal and the government owns the remainder, where t_n is the marginal tax rate when the funds are withdrawn. Second, the government shares in both the return and the risk of assets held in taxable accounts. The authors discuss these concepts’ implications for wealth management.

A full list of previous Dodd and Graham Award winners is available on our publications site.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.