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Author: Arun Muralidhar Publisher: ISBN: Category : Languages : en Pages : 15
Book Description
This paper makes a simple but bold argument that because mean-variance optimization (MVO) and the capital asset pricing model (CAPM) were derived from a theoretical construct rather than reality, they represent a specialized case of a more general theory. We suggest a theory based on the liability to be serviced by an investment portfolio that is managed by a delegated decision maker. From this perspective, all decisions are relative; hence we present a relative asset pricing model (RAPM) as the true starting point for asset pricing theory. RAPM accommodates the fact that real investors are concerned about the relative return of their portfolios (relative mean) and the relative risk of their portfolios (composed of two independent variables -- relative variance and correlation). Moreover, investors are concerned about their agents' skill to generate alpha. Turning off these features gives us CAPM; hence our claim that CAPM is a stylized model of a more general theory. Because current theory was derived from the assumptions that investors are concerned about their absolute wealth and that they know the return distribution, which is characterized by mean and variance, it misses an important part of real-life decision making. When investors are concerned about the relative return of their portfolios and do not know the return distribution that is generated by their agents, correlation matters in addition to mean and variance. Therefore investment decision making will occur in three-dimensional space rather than the meanvariance two-dimensional plane. A decision maker forced to choose only two of three or more independent variables would get a limited result. This is exactly what happens with investment theory. This paper provides the foundation for adding a correlation dimension. We hope that other talented academics will help develop RAPM, which will provide better recommendations for asset pricing, asset allocation, rebalancing, risk-adjusted performance calculations, and manager compensation.
Author: Arun Muralidhar Publisher: ISBN: Category : Languages : en Pages : 15
Book Description
This paper makes a simple but bold argument that because mean-variance optimization (MVO) and the capital asset pricing model (CAPM) were derived from a theoretical construct rather than reality, they represent a specialized case of a more general theory. We suggest a theory based on the liability to be serviced by an investment portfolio that is managed by a delegated decision maker. From this perspective, all decisions are relative; hence we present a relative asset pricing model (RAPM) as the true starting point for asset pricing theory. RAPM accommodates the fact that real investors are concerned about the relative return of their portfolios (relative mean) and the relative risk of their portfolios (composed of two independent variables -- relative variance and correlation). Moreover, investors are concerned about their agents' skill to generate alpha. Turning off these features gives us CAPM; hence our claim that CAPM is a stylized model of a more general theory. Because current theory was derived from the assumptions that investors are concerned about their absolute wealth and that they know the return distribution, which is characterized by mean and variance, it misses an important part of real-life decision making. When investors are concerned about the relative return of their portfolios and do not know the return distribution that is generated by their agents, correlation matters in addition to mean and variance. Therefore investment decision making will occur in three-dimensional space rather than the meanvariance two-dimensional plane. A decision maker forced to choose only two of three or more independent variables would get a limited result. This is exactly what happens with investment theory. This paper provides the foundation for adding a correlation dimension. We hope that other talented academics will help develop RAPM, which will provide better recommendations for asset pricing, asset allocation, rebalancing, risk-adjusted performance calculations, and manager compensation.
Author: Bradford Cornell Publisher: ISBN: Category : Languages : en Pages : 27
Book Description
Asset pricing theory has traditionally made predictions about risk and return, but has been silent on the actual process of investment. Many if not most investors delegate major investment decisions to professionals, to investment managers and financial advisors. This suggests that the instructions given by investors to their delegated agents and the compensation of those agents might be important determinants of capital market equilibrium. In the extreme when all investment decisions are delegated, the preferences and beliefs of individuals would be completely superseded by the objective functions of agent/managers. Agency theory holds that such objective functions cannot be isomorphic to principals' preferences and beliefs, which suggests that asset pricing could differ fundamentally from that predicted by existing theory. A simple example of the difference is provided in this paper based active asset management relative to a benchmark index, a common objective function in practice but with no grounding in traditional theory. With the growing preponderance of delegated investing, future asset pricing theory will not only have to describe risk and return but, to be complete, must also be able to explain the observed objective functions used by professional managers.
Author: Söhnke M. Bartram Publisher: CFA Institute Research Foundation ISBN: 195292703X Category : Business & Economics Languages : en Pages : 95
Book Description
Artificial intelligence (AI) has grown in presence in asset management and has revolutionized the sector in many ways. It has improved portfolio management, trading, and risk management practices by increasing efficiency, accuracy, and compliance. In particular, AI techniques help construct portfolios based on more accurate risk and return forecasts and more complex constraints. Trading algorithms use AI to devise novel trading signals and execute trades with lower transaction costs. AI also improves risk modeling and forecasting by generating insights from new data sources. Finally, robo-advisors owe a large part of their success to AI techniques. Yet the use of AI can also create new risks and challenges, such as those resulting from model opacity, complexity, and reliance on data integrity.
Author: Donald R. Chambers Publisher: CFA Institute Research Foundation ISBN: 1944960384 Category : Business & Economics Languages : en Pages : 122
Book Description
Alternative Investments: A Primer for Investment Professionals provides an overview of alternative investments for institutional asset allocators and other overseers of portfolios containing both traditional and alternative assets. It is designed for those with substantial experience regarding traditional investments in stocks and bonds but limited familiarity regarding alternative assets, alternative strategies, and alternative portfolio management. The primer categorizes alternative assets into four groups: hedge funds, real assets, private equity, and structured products/derivatives. Real assets include vacant land, farmland, timber, infrastructure, intellectual property, commodities, and private real estate. For each group, the primer provides essential information about the characteristics, challenges, and purposes of these institutional-quality alternative assets in the context of a well-diversified institutional portfolio. Other topics addressed by this primer include tail risk, due diligence of the investment process and operations, measurement and management of risks and returns, setting return expectations, and portfolio construction. The primer concludes with a chapter on the case for investing in alternatives.
Author: Pedro Matos Publisher: CFA Institute Research Foundation ISBN: 1944960988 Category : Business & Economics Languages : en Pages : 80
Book Description
This survey examines the vibrant academic literature on environmental, social, and governance (ESG) investing. While there is no consensus on the exact list of ESG issues, responsible investors increasingly assess stocks in their portfolios based on nonfinancial data on environmental impact (e.g., carbon emissions), social impact (e.g., employee satisfaction), and governance attributes (e.g., board structure). The objective is to reduce exposure to investments that pose greater ESG risks or to influence companies to become more sustainable. One active area of research at present involves assessing portfolio risk exposure to climate change. This literature review focuses on institutional investors, which have grown in importance such that they have now become the largest holders of shares in public companies globally. Historically, institutional investors tended to concentrate their ESG efforts mostly on corporate governance (the “G” in ESG). These efforts included seeking to eliminate provisions that restrict shareholder rights and enhance managerial power, such as staggered boards, supermajority rules, golden parachutes, and poison pills. Highlights from this section: · There is no consensus on the exact list of ESG issues and their materiality. · The ESG issue that gets the most attention from institutional investors is climate change, in particular their portfolio companies’ exposure to carbon risk and “stranded assets.” · Investors should be positioning themselves for increased regulation, with the regulatory agenda being more ambitious in the European Union than in the United States. Readers might come away from this survey skeptical about the potential for ESG investing to affect positive change. I prefer to characterize the current state of the literature as having a “healthy dose of skepticism,” with much more remaining to be explored. Here, I hope the reader comes away with a call to action. For the industry practitioner, I believe that the investment industry should strive to achieve positive societal goals. CFA Institute provides an exemplary case in its Future of Finance series (www.cfainstitute.org/research/future-finance). For the academic community, I suggest we ramp up research aimed at tackling some of the open questions around the pressing societal goals of ESG investing. I am optimistic that practitioners and academics will identify meaningful ways to better harness the power of global financial markets for addressing the pressing ESG issues facing our society.
Author: Kenneth D. Garbade Publisher: MIT Press ISBN: 9780262072236 Category : Business & Economics Languages : en Pages : 442
Book Description
Bringing together developments from the past 30years in contingent valuation, this book examines the relative value of securities in a corporation's capital structure, including debt of different priorities, convertible debt, common stock, and warrants.
Author: Publisher: ISBN: Category : Languages : en Pages : 64
Book Description
The Bulletin of the Atomic Scientists is the premier public resource on scientific and technological developments that impact global security. Founded by Manhattan Project Scientists, the Bulletin's iconic "Doomsday Clock" stimulates solutions for a safer world.
Author: Financial Crisis Inquiry Commission Publisher: Cosimo, Inc. ISBN: 1616405414 Category : Political Science Languages : en Pages : 692
Book Description
The Financial Crisis Inquiry Report, published by the U.S. Government and the Financial Crisis Inquiry Commission in early 2011, is the official government report on the United States financial collapse and the review of major financial institutions that bankrupted and failed, or would have without help from the government. The commission and the report were implemented after Congress passed an act in 2009 to review and prevent fraudulent activity. The report details, among other things, the periods before, during, and after the crisis, what led up to it, and analyses of subprime mortgage lending, credit expansion and banking policies, the collapse of companies like Fannie Mae and Freddie Mac, and the federal bailouts of Lehman and AIG. It also discusses the aftermath of the fallout and our current state. This report should be of interest to anyone concerned about the financial situation in the U.S. and around the world.THE FINANCIAL CRISIS INQUIRY COMMISSION is an independent, bi-partisan, government-appointed panel of 10 people that was created to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." It was established as part of the Fraud Enforcement and Recovery Act of 2009. The commission consisted of private citizens with expertise in economics and finance, banking, housing, market regulation, and consumer protection. They examined and reported on "the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government."News Dissector DANNY SCHECHTER is a journalist, blogger and filmmaker. He has been reporting on economic crises since the 1980's when he was with ABC News. His film In Debt We Trust warned of the economic meltdown in 2006. He has since written three books on the subject including Plunder: Investigating Our Economic Calamity (Cosimo Books, 2008), and The Crime Of Our Time: Why Wall Street Is Not Too Big to Jail (Disinfo Books, 2011), a companion to his latest film Plunder The Crime Of Our Time. He can be reached online at www.newsdissector.com.
Author: Arun Muralidhar
Author: Arun Muralidhar
Author: Bradford Cornell
Author: Söhnke M. Bartram
Author: 
Author: Vasant Naik
Author: Donald R. Chambers
Author: Pedro Matos
Author: Kenneth D. Garbade
Author: 
Author: Financial Crisis Inquiry Commission