Practical analysis for investment professionals
31 October 2012

Take 15: Challenges in Portfolio Management: Fat Tails, Downside Risk, ERP, and Trade Execution (Video)

Peng Chen, CEO Asia (ex-Japan) at Dimensional Fund Advisors, a firm noted for its collaboration with Nobel laureates and top financial economists, discusses the latest development in investment portfolio management that deals with the key challenges that are once again highlighted by the global financial crisis.

Investment returns are not normally distributed, and in this non-Gaussian world, the traditional mean-variance framework has proven again and again to be inadequate in practice. Tools such as conditional value-at-risk and truncated Lévy flight that deal with skewness, kurtosis, and fat tails are discussed, along with the importance of focusing on capturing broad market or beta returns in the long term and avoiding the temptation of mainly pursuing alpha.

In addition, the equity risk premium (ERP) and the long-term return of stocks over bonds and cash, market anomalies and tilting portfolios toward small capitalization and value stocks in capturing the risk premiums, the importance of portfolio implementation and smart trade execution, as well as the wealth management landscape in the Asia-Pacific are also explored.


This episode of the Take 15 Series was originally released on 10 October 2012.


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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.

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About the Author(s)
Samuel Lum, CFA

Samuel Lum, CFA, was director of Private Wealth and Capital Markets at CFA Institute, where he focused on wealth management and capital markets, mainly in an Asia-Pacific context.

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