Practical analysis for investment professionals

Modern Portfolio Theory (MPT)


Record Low Rates and Volatility Muddle Financial Models

Alarm bells have been ringing over the summer about remarkably low levels of volatility — a key input in many common investment models — across global markets.

Is Mainstream Finance Theory Adrift?

An important new monograph from the CFA Institute Research Foundation explores a fundamental question in the wake of the global financial crisis: Has finance theory failed investors?

Are We Complacent or Petrified?

After examining his own and others' current thinking, A. Michael Lipper, CFA, believes our low level of activity in the market could indicate that we have become petrified.

Behavioral Portfolio Management: Emotions and Volatility Are Key to Successful Implementation

Despite numerous studies attempting to link volatility to changing fundamentals, research shows that investor emotions are the root cause of the vast majority of these price changes, according to C. Thomas Howard.

Behavioral Portfolio Management: An Alternative to Modern Portfolio Theory

As modern portfolio theory fades in reputation from intense pressure from behavioral finance, many researchers are seeking to fill the void with behavioral finance applications. Behavioral portfolio management is one such model.

Modern Portfolio Theory: Bruised, Broken, Misunderstood, Misapplied?

If the global financial crisis has left us with any enduring lessons, it's that asset return distributions can be significantly skewed and asymmetrical with fat-tails. So how can investment practitioners manage this new reality? That question animated a recent presentation by Dr. Peng Chen, CEO Asia (ex-Japan) of Dimensional Fund Advisors, at the CFA Institute Thailand Investment Conference, which was co-sponsored with CFA Society Thailand and the country's Securities Exchange Commission.

Live Webcast: Asset Allocation in a Non-Normal World

Broadcast live from the Thailand Investment Conference, Peng Chen, CFA, chief executive officer of Asia (ex-Japan) at Dimensional Fund Advisors, will discuss "Asset Allocation in a Non-Normal World."

Asset Allocation for Private Clients: One Part Theory, Two Parts Emotion

Helping a client understand and articulate their own goals and their biggest fears, and then building a compatible investment strategy, is an enormous challenge and is likely to be different with every client.

The Feuding Tribes of Practitioners (and Theorists) in Investment Management

Amidst the worst financial crisis in a generation, polarizations between proponents of quantitative approaches and those who favor classical fundamental analysis and behavioral finance pose a hindrance to solving the practical challenges we face as investors. Can this chasm be bridged?

Book Review: Corporate Governance Failures

In August 2007, the head of AIG’s financial products division stated, “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar” in any credit default swap (CDS) transactions. Five months later, AIG disclosed that it had lost not $1.00 but $5 billion on its CDS exposure. This turn of events is just one example of sophisticated financial institutions’ hugely misjudging the risk of “financial weapons of mass destruction.” The reasons for their systematic failure deserve thoughtful and rigorous study.



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