We create an annual return index for the invested global multiasset market portfolio. We use a newly constructed unique data set covering the entire market of financial investors. We analyze returns and risk from 1960 to 2017, a period during which the market portfolio realized a compounded real return in U.S. dollars of 4.45%, with a standard deviation of annual returns of 11.2%. The compounded excess return was 3.39%. We publish these data on returns of the market portfolio, so they can be used for future asset pricing and corporate finance studies. Received March 4, 2019; editorial decision October 9, 2019 by Editor Jeffrey Pontiff.

Currency carry strategies have long positions in currencies with a high interest rate and short positions in currencies with a low interest rate. Currency carry strategies have generated about 5.4% return per annum (Sharpe ratio: 0.57) over the period December 1996 to May 2014. However, during the recent financial crisis, the carry strategy suffered losses of up to 20% on invested capital. We investigate whether investors could have used the implied option volatility index on the US equity market (the VIX) or the option implied volatility index from G7 currencies (the VXY) to time the currency carry trade. We examine a large set of timing strategies and find that for some specific settings excess returns can be as large as 2.5% per annum. However, when we take into account that we investigated many trading strategies, these excess returns turn out not to be statistically significant. Hence, our findings cast doubt on implied volatility as a stand-alone timing indicator for currency carry trading in real-life portfolio decisions.

We examine 24 global factor premiums across equity, bond, commodity, and currency markets via replication and out-of-sample evidence between 1800 and 2016. Replication yields ambiguous evidence within a unified testing framework that accounts for p-hacking. Out-of-sample tests reveal strong and robust presence of the large majority of global factor premiums, with limited out-of-sample decay of the premiums. We find global factor premiums to be generally unrelated to market, downside, or macroeconomic risks in the 217 years of data. These results reveal significant global factor premiums that present a challenge to traditional asset pricing theories.

Collectively organized pension plans must increasingly demonstrate that the risk preferences of their members are adequately reflected in the plans’ asset allocations. However, whether funds should elicit individual members’ risk preferences to achieve this goal, or whether they can rely on other indicators, such as socio-demographics, remains unclear. To address this question, we apply a tailored augmented lottery choice method to elicit individual pension income risk preferences from 7,894 members from five different pension plans. The results show that member risk preferences are strongly heterogeneous and can only partially be predicted from individual and plan characteristics. Differences in risk preference imply different optimal asset allocations. We find large welfare losses for heterogeneous members in pension plans with their current asset allocation because these allocations are safer than implied by members’ preferences. We provide a framework for pension plans to gauge the need to elicit risk preferences among their members.