Academic in nature, our Investment Research showcases the work of Lazard’s thought leaders from around the world.

Our latest research on U.S. house prices indicates that we are at or near the bottom. We believe that the unprecedented degree and breadth of government and central bank intervention to stem the decline in prices has largely succeeded in averting a potentially disastrous situation. (May 2010)
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In a one-stock universe, all managers are tied for best (and worst) and skill has no bearing on results: The selection of this universe above all others fully explains the outcome. The relevance of skill rises to prominence only when an investment universe features many dissimilar choices; this dispersion affords active selection more freedom with which to succeed or fail. This investment research paper focuses on measurement and analysis of dispersion in emerging markets, potential benefits of concentration, and implications for portfolio construction. (April 2010)
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The emerging market equity universe has become bigger, broader, and deeper. Over the last five years, clear style distinctions among investment managers have emerged; these style groups have generated differentiated patterns of performance—patterns that, in some cases, are negatively correlated. In our view, this differentiation presents an opportunity to blend style exposures, smooth portfolio volatility, achieve higher risk-adjusted returns, and better determine asset class entry and exit points. (April 2010)
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Electrified vehicles—or “EVs”—are no longer the stuff of science fiction. Lazard Asset Management considers electrification of the automotive industry—while clearly still nascent and still subject to many uncertainties—to be a potentially significant investment theme globally for the next decade and beyond. Even more, we believe that the deployment of EVs on a commercial scale will likely begin to ramp up in selected markets over the next five years.
A confluence of economic, public policy, technological, and environmental forces are converging to power this trend forward. While we anticipate that EV adoption in the United States will lag, we believe that multiple countries, led by Israel and Denmark, will reach critical mass faster than conventional thinking reflects. The potential investment ramifications of these intriguing developments are both deep and global. (January 2010)
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In the aftermath of the global financial crisis, many investors reassessed their risk budgets downward. In some cases, this resulted in a decision to invest into passive strategies for global equity portfolios. The investment industry has traditionally used passive beta strategies based on market-cap weights (Cap Weight). However, there are other beta strategies that institutional investors can choose from, some offering better return and/or lower volatility when compared with Cap Weight.
Paul Moghtader and Craig Scholl from Lazard have recently co-authored a research paper with Rob Arnott and Vitali Kalesnik, from Research Affiliates, titled “Beyond Cap Weight: The Empirical Evidence for a Diversified Beta,” which analyzes some of these alternatives and explores the potential of a more diversified approach in the quest for beta. (December 2009)
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In this paper we update the analysis from our Investment Research paper, “The Crumbling Foundation of U.S. House Prices, May 2009 Update” to include one new quarter of observations. Using the new information, we revise our predictions on house prices, and suggest some additional caveats to the analysis. (August 2009)
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Many market commentators think that mark-to-market accounting is the root cause of the collapse of the U.S. financial system. They believe that the Financial Accounting Standards Board (FASB) Statement No. 157, “Fair Value Measurements,” that took effect in the beginning of 2008 exacerbated our financial system problems, and that if mark-to-market accounting were simply repealed the majority of these problems would disappear. Furthermore, they note that FASB Chairman Bob Herz’s testimony on mark-to-market accounting in front of Congress on 12 March 2009, and FASB’s initial proposals on this issue on 16 March 2009 are nearly coincident with the stock market bottom on 9 March 2009, which has been followed by a strong rally in financial stocks; their assumption is the mark-to-market accounting rule changes are one of the primary reasons for the stock market rally. At Lazard Asset Management, we disagree with these points of view. Are the FASB mark-to-market accounting changes material? Probably not. Are they misunderstood? Most definitely, yes. (May 2009)
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In this paper we update the analysis from our Investment Research paper, “The Crumbling Foundation of U.S. House Prices,” to include two new quarters of observations. Using the new information, we revise our predictions on house prices, and suggest some additional caveats to the analysis.
(May 2009)
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Our research indicates that home prices could decline over 40% from the levels observed at the end of 2008. This outlook is meaningfully more negative than most current expectations. Significant declines in mortgage borrowing rates near the end of 2008 may have decreased the downside in home prices somewhat, but our analysis lends support to current efforts by government officials to intervene even more forcefully in the mortgage markets. (January 2009)
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An analysis of the mechanics governing convertible arbitrage intuitively indicates that there is a potential to achieve substantial diversification benefits when this strategy is included in a traditional portfolio of stocks and bonds. Empirical evidence confirms that convertible arbitrage as an asset class has one of the lowest correlations to stock and bond prices out of a group of popular hedge fund strategies, thus making a strong case for its inclusion into a U.S.-based or global portfolio with the objective of increasing risk-adjusted returns, as measured by the Sharpe ratio. (November 2008)
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Although the phenomenon of globalization has expanded to more and more areas of the economy in the last few years, capital investors, surprisingly, do not appear to have closely followed this trend. And although foreign allocations have steadily increased, year after year, across all asset classes, in the fixed-income sector a home-currency bias is still predominant. This paper discusses several potential explanations for this "home bias puzzle," and provides some theoretical and empirical arguments why "going global" may be advantageous for fixed-income investors. (September 2008)
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Futures contracts on the S&P 500 Volatility Index (VIX Index), or VX Futures, offer investors the opportunity to make pure play trades on the direction of implied volatility. In this paper, the authors examined the positive contribution of VX Futures as an additional asset in both passive and actively managed portfolios containing a diversified U.S. equity index and U.S. Treasury bonds. They demonstrated that this contribution is derived from the relatively stable, and consistently negative, correlation of VX Futures with the S&P 500 Index. (July 2008)
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The year 2007 was apparently a particularly difficult one for quantitative managers, or "quants"; empirical data shows that most managers underperformed the market for the year. However, long-term performance analysis continues to show large risk/return dispersion among managers, with some demonstrating attractive returns. As increased data availability and reliability will allow for evolution and further differentiation, the opportunity set remains attractive for quants. (June 2008)
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The term "emerging market" was coined in 1981 by Antoine W. van Agtmael, an economist at the International Finance Corporation (IFC), part of the World Bank. Since then, this term has not only entered the common vernacular, but it has also seen many new siblings develop, such as "frontier markets." Although the evolution of the emerging markets equity asset class is still beginning, there appear to be opportunities for investors to combine strategies of both different capitalizations and styles to achieve better overall risk-adjusted returns, as well as long-term returns. (June 2008)
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The United States faces what could be its worst financial crisis since the 1930s. The data pointing toward the worst-case scenario keeps accumulating. Home prices are expected to decline as much as 20% nationally by 2010. If this were to occur, as many as 14 million homeowners would have mortgages in excess of their home value, leading to a precipitous decline in spending, increased unemployment and a dangerous negative feedback loop in which each step leads to more pain. The housing crisis could well turn into an economic catastrophe. In spite of the rapid escalation of problems, we feel there is still time to act to avert the worst-case scenario. (March 2008)
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The crisis unfolding in the U.S. mortgage industry has given many the opportunity to opine on the villains and victims, as well as the potential solutions being put forth. However, not enough has been written about the root causes of the current crisis and the confluence of events that led to the current situation, or of the potential ramifications yet to unfold. To assess the current situation and outlook, it is important to understand how we got where we are today. From that perspective, one can then better understand why the bad loans were ultimately made, why they are defaulting now, and what the future might hold. (January 2008)
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