Resume

• 1982

  Doctor of Philosophy (PhD)

  Finance

  General

  University of Nebraska-Lincoln

• 1981

  English

  Master of Business Administration - MBA

  Finance

  General

  Iowa State University - Ivy College of Business

• 1977

  Bachelor of Science (BS)

  Business/Managerial Economics

  South Dakota State University

  Chartered Financial Analyst

  CFA Institute

• Financial Analysis

  University Teaching

  Financial Modeling

  Statistics

  Risk Management

  Data Analysis

  Quantitative Analytics

  Investments

  Monetary Policy

  Leadership

  Finance

  Economics

  Analysis

  Higher Education

  Investment Management

  Microsoft Excel

  Derivatives

  Corporate Finance

  Valuation

  Portfolio Management

  The Presidential Term: Is the Third Year the Charm?

  Is there a relation between security returns and the year of a U.S. president's term? The answer is yes. There is a prominent pattern in stock returns that relates to the presidential term. Equities have generally prospered in the second half of a president's term

  especially during the third year. Further analysis reveals that monetary policy actions correspond with the identified return pattern—Fed policy has generally been significantly more accommodative during the third year of a president's term. The evidence overall strongly suggests that investors should carefully monitor the actions of policymakers and the political calendar before they make investment decisions.

  The Presidential Term: Is the Third Year the Charm?

  Jeff Mercer

  In this article the authors examine the diversification benefits of adding managed and unmanaged commodity futures to a traditional portfolio that consists of U.S. equities

  foreign equities

  corporate bonds

  and Treasury bills from 1973 through 1999. Consistent with previous evidence

  they find that commodity futures substantially enhance portfolio performance for investors

  and managed futures provide the greatest benefit. They show that the benefits of adding commodity futures (both managed and unmanaged) accrue almost exclusively when the Federal Reserve is following a restrictive monetary policy. The results suggest that metals and agricultural futures contracts offer the most diversification benefits for investors. Overall

  the findings indicate that investors should gauge monetary conditions to determine the optimal allocation of commodity futures within a portfolio

  and whether a short or a long position should be established in a particular type of contract.

  Tactical Asset Allocation and Commodity Futures

  In this election year

  it is interesting to examine historical security market returns in terms of the political party of the President

  the general monetary policy stance of the Federal Reserve

  and political gridlock

  when different political parties control Congress and the executive branch. It is an innovation to evaluate the three variables jointly. Such a combined analysis reveals that long-term security returns are strongly related to shifts in Fed monetary policy but generally invariant to changes in the political landscape. Investors should thus focus their attention on Fed actions rather than political outcomes.

  Don’t Worry About the Election – Just Watch the Fed

  Jeff Mercer

  This article provides new evidence on the return/risk benefits of adding managed futures to the investment set. We investigate four mean-variance efficient allocations

  ranging from conservative to aggressive. The results indicate that with as little as 10% of the original portfolios reallocated to futures

  portfolio return (risk) is significantly increased (decreased) for all four allocations. Importantly

  the analysis shows that a simple indicator of the Fed's monetary policy stance can be used to reliably forecast when futures provide the most benefit. Specifically

  significant improvements in Sharpe ratios occur when the Fed takes a restrictive monetary policy stance (about half the time over our 40-year sample). In contrast

  there is no significant improvement when the Fed takes an expansive policy stance. Finally

  the authors show that these results are consistent through time.

  Time Variation in the Benefits of Managed Futures

  This article examines the relationship between security returns and “political gridlock

  ” which occurs when the U.S. House of Representatives

  Senate

  and presidency are not controlled by the same political party. The findings support the following conclusions: First

  the common view that equities prosper during political gridlock is a myth. Second

  fixed-income securities do prosper during gridlock. Third

  large companies exhibit higher returns than small companies during gridlock. Finally

  the relationship between gridlock and security returns is independent of monetary conditions; this finding supports the existence of a unique “gridlock effect.” Overall

  political conditions are relevant for investors

  but previous views about their influence are misguided.

  Gridlock’s Gone

  Now What?

  In the book

  we take the position that correct interpretation of Fed policy actions leads to better investing decisions. To this end

  we present strategies that help investors use Fed actions to enhance portfolio performance.

  Invest with the Fed: Maximizing Portfolio Performance by Following Federal Reserve Policy

  Jeff Mercer

  Thirty-eight years of U.S. data indicate that U.S. monetary policy continues to have a strong relationship with security returns. U.S. stock returns are consistently higher and less volatile when the Federal Reserve is following an expansive monetary policy. Furthermore

  the monetary policy–related return patterns of companies considered to be most sensitive to changes in monetary conditions are much more pronounced than average patterns. Finally

  the influence of U.S. monetary policy is global; international indexes have return patterns similar to those for the U.S. market. Overall

  the evidence suggests that investment professionals should continue to consider monetary conditions when performing fundamental analysis of U.S. and international securities.

  Is Fed Policy Still Relevant for Investors?

  C. Mitchell Conover

  What Difference Do Dividends Make?

  Using 24 years of data

  we show that emerging market equities are a worthy addition to a U.S. investor's portfolio of developed market equities. Specifically

  portfolio returns increased by approximately 1.5 percentage points a year when emerging country equities were included in the investment set. When we considered U.S. Federal Reserve monetary policy

  however

  we found that the benefits of investing in emerging markets accrued almost exclusively during periods of restrictive U.S. monetary policy. During periods of expansive U.S. monetary policy

  the benefits to a U.S. investor of holding emerging market equities were trivial. An implication of our findings is that evaluating monetary conditions is a necessary prerequisite to identifying an optimal allocation of assets to international equities.

  Emerging Markets: When Are They Worth It?

  Jeff Mercer

  With the recent increase in equity volatility

  commodity investments have garnered significant attention from investors. Previous research has found substantial benefits associated with commodity investments

  but there remains considerable uncertainty regarding the consistency and general applicability of those benefits for equity investors. This article provides evidence that helps to resolve some of the uncertainty with regard to commodity investments. Specifically

  based on a sample period of 36 years

  it shows substantial benefits to commodity investments regardless of the equity style an investor pursues. Obtaining a significant benefit

  however

  requires a commodity allocation greater than 5%. Interestingly

  adding a commodity exposure enhances an equity portfolio’s return only during periods when the Federal Reserve is increasing interest rates

  which is consistent with the belief that a major attraction of commodities is that they serve as an inflation hedge. Furthermore

  an allocation to commodities in a tactical asset allocation using monetary conditions consistently outperforms both a strategic commodities allocation and an all-equity portfolio.

  Is Now the Time to Add Commodities to Your Portfolio?

  We investigate the efficacy of a sector rotation strategy that utilizes an easily observable signal based on monetary conditions. Using 33 years of data

  we find that the rotation strategy earns consistent and economically significant excess returns while requiring only infrequent rebalancing. The strategy places greater emphasis on cyclical stocks during periods of Fed easing

  and overweights defensive stocks during periods of Fed tightening. Interestingly

  the benefits from the rotation strategy accrue predominantly during periods of poor equity market performance

  which is when performance enhancement is most valued by investors. Specifically

  during restrictive monetary periods

  returns to the strategy are nearly twice that of comparable investments

  yet the strategy assumes less risk. Overall

  our results suggest that investors should consider monetary conditions when determining their portfolio allocations

  Sector Rotation and Monetary Conditions

  Garcia-Feijoo

  Jensen

  and Johnson evaluate the effectiveness of several asset classes in the hedging of portfolio risk over the 1970–2010 period. Of the alternative assets examined

  commodities offer the greatest diversification potential due to their very low correlation with stock and bond returns. Furthermore

  while the diversification benefits of many asset classes diminish during periods of extreme market movements

  the benefits of commodities remain strong. Overall

  they find robust support for the hedging potential of commodities

  but they present three caveats to this view. First

  relative to the other commodities

  industrial metals offer much less diversification potential for equity investors. Second

  commodities serve as considerably more effective hedges during periods when Federal Reserve monetary policy is tight (i.e.

  when inflationary concerns are elevated). Third

  relative to the other commodities

  precious metals provide equity investors with a more consistent hedge across alternative inflationary environments.

  The Effectiveness of Asset Classes in Hedging Risk

  Jensen

  Northern Illinois University

  Economic Index Associates

  Creighton University's Heider College of Business

  Creighton University

  Omaha

  Nebraska

  Professor of Finance

  Creighton University

  Economic Index Associates

  Creighton University's Heider College of Business

  Omaha

  NE

  Professor of Finance

  Northern Illinois University

  Creighton University

  Omaha Nebraska

  I teach investments at the undergraduate and graduate level. I also oversee the Student Managed Portfolio.

  Finance Professor