Dismantling the finance industry’s closet indexing factory is a critical step in The Active Equity Renaissance, C. Thomas Howard and Jason Voss, CFA, observe.
One modern portfolio theory (MPT) pillar that is unquestionably broken is the use of volatility, specifically standard deviation, as a measure of risk, Jason Voss, CFA, and C. Thomas Howard write in the latest edition of The Active Equity Renaissance series. This initial error in MPT's development is a major contributor to active investment management underperformance.
“I know you are afraid and you should be afraid. I will invest you in products that will not stir up your fears." This sentiment is applied over and over again in the investment industry in one form or another, by the "Cult of Emotion."
Post-event analyst forecasts — those made subsequent to recent results or management guidance — are significantly more accurate than management forecasts, reports Jeremy Monk. And if analysts can provide insight into tangible measures of value, then we can presume they are also able to offer insight into other, less tangible measures of value, such as management quality and industry outlook.
The relationship between investment consultants and active investment managers is frequently a strained one. What are the biggest mistakes an active manager can make to complicate the collaboration? We asked CFA Institute Financial NewsBrief readers what they thought, and Jason Voss, CFA, analyzes the results.
Investment professionals recognize that the markets are messy places, filled with less than rational participants. From their perspective, this can obviate any further discussion about the value of academic finance and its models. But this puts too high a threshold on the measure of academia.
Active managers are often viewed as Sherlock Holmes-style detectives gathering facts, interviewing witnesses, and developing theories to inform their investment judgments. In the latest edition of his Alpha Wounds series, however, Jason Voss, CFA, argues that this perception rarely reflects reality.
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