Exploring Optimal Mixed Asset Portfolio Allocation
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| Author | : Yoojin Sul |
| Publisher | : |
| Total Pages | : 92 |
| Release | : 2017 |
| Genre | : |
| ISBN | : |
The current world economy confronts investors with many challenges, especially investors managing institutional portfolios. Global GDP growth has been slowed, and the performance of traditional assets - equities and bonds - alone are often not able to satisfy the various risk and return objectives that institutional investors seek in their portfolios. Amid this challenging investment environment, investors around the world are seeking new investment strategies to lessen their reliance on those traditional asset classes. Consequently, alternative investments continue to garner greater attention of investors as an effective method to diversify their portfolios and to potentially increase overall returns and mitigate risk. However, the term "alternative investments" encompasses a broad range of investment concepts and there is no generally accepted standard definition. A major focus of this thesis is to compare real estate and real assets with hedge funds and private equity, the four most prevalent sub-classes within alternative investments. Specifically, we address the question of whether, or to what extent, real assets including real estate can improve the performance of institutional investment portfolio, in particular in comparison with the private equity and hedge funds. Additionally, we analyze the effect of diversifying globally compared to domestically. We first develop a common ground regarding alternative investments and their characteristics. Then, we focus primarily on traditional mean-variance optimization but also consider risk parity as the allocation criterion to explore the optimal mixed-asset allocation strategies as a function of the investor's expected return target. Additionally, we compare the resulting allocations with institutional investors current average allocation in their portfolios. The findings clearly indicate that adding alternative asset classes generally offers attractive diversification opportunities to a portfolio consisting of only traditional asset classes - stocks and bonds. We find that real assets and the private equity & hedge fund type of alternative assets both enhance the portfolio, and the aggregated optimal share of these alternative investments is much higher than current industry practice. However, the role of the various different types of alternative investments varies widely in a portfolio, in particular as a function of the investor's risk/return appetite.
| Author | : William Kinlaw |
| Publisher | : John Wiley & Sons |
| Total Pages | : 259 |
| Release | : 2017-05-02 |
| Genre | : Business & Economics |
| ISBN | : 1119402425 |
Since the formalization of asset allocation in 1952 with the publication of Portfolio Selection by Harry Markowitz, there have been great strides made to enhance the application of this groundbreaking theory. However, progress has been uneven. It has been punctuated with instances of misleading research, which has contributed to the stubborn persistence of certain fallacies about asset allocation. A Practitioner's Guide to Asset Allocation fills a void in the literature by offering a hands-on resource that describes the many important innovations that address key challenges to asset allocation and dispels common fallacies about asset allocation. The authors cover the fundamentals of asset allocation, including a discussion of the attributes that qualify a group of securities as an asset class and a detailed description of the conventional application of mean-variance analysis to asset allocation.. The authors review a number of common fallacies about asset allocation and dispel these misconceptions with logic or hard evidence. The fallacies debunked include such notions as: asset allocation determines more than 90% of investment performance; time diversifies risk; optimization is hypersensitive to estimation error; factors provide greater diversification than assets and are more effective at reducing noise; and that equally weighted portfolios perform more reliably out of sample than optimized portfolios. A Practitioner's Guide to Asset Allocation also explores the innovations that address key challenges to asset allocation and presents an alternative optimization procedure to address the idea that some investors have complex preferences and returns may not be elliptically distributed. Among the challenges highlighted, the authors explain how to overcome inefficiencies that result from constraints by expanding the optimization objective function to incorporate absolute and relative goals simultaneously. The text also explores the challenge of currency risk, describes how to use shadow assets and liabilities to unify liquidity with expected return and risk, and shows how to evaluate alternative asset mixes by assessing exposure to loss throughout the investment horizon based on regime-dependent risk. This practical text contains an illustrative example of asset allocation which is used to demonstrate the impact of the innovations described throughout the book. In addition, the book includes supplemental material that summarizes the key takeaways and includes information on relevant statistical and theoretical concepts, as well as a comprehensive glossary of terms.
| Author | : Tingting Fu |
| Publisher | : |
| Total Pages | : 53 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
Modern Portfolio Theory has been developed over the last fifty years, and there are several studies linking Modern Portfolio Theory with the allocation of real estate property in multi-asset portfolios. However, in reality, most real estate fund managers don't use MPT as a guideline when they are structuring a portfolio and deploying allocation strategy for a real estate fund. The main reason for this gap between theory and reality is that the traditional mean-variance approach of MPT requires accurate data of variances, covariance and expected return over the long term; and those data are quite difficult to collect on an ad hoc base. This Thesis applies a new technique to examine property asset allocation strategies and improve the performance of a real estate investment sample portfolio in the US. We straight-model the portfolio weight in each property type of asset as a function of the asset's characteristics: either physical attributes such as property size, vacancy rate, property type, location etc.; or financial attributes such as Cap Rate. The coefficients of this function are found by optimizing the investor's average utility of the portfolio's return over a certain period of years. The aim of this approach is to find a simple and easily modified methodology for real estate portfolio managers when they are deciding on acquisitions and making portfolio policies. In general, this Thesis aims to apply the new technique to help practitioners and other researchers improve the practical implementation of optimal portfolio policies.
| Author | : John Y. Campbell |
| Publisher | : OUP Oxford |
| Total Pages | : 272 |
| Release | : 2002-01-03 |
| Genre | : Business & Economics |
| ISBN | : 019160691X |
Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
| Author | : Dorianne Perrucci |
| Publisher | : John Wiley & Sons |
| Total Pages | : 379 |
| Release | : 2009-04-01 |
| Genre | : Business & Economics |
| ISBN | : 0470522550 |
An easy-to-understand how-to guide to the single most important thing you can do in investing — choosing and mixing your assets successfully. You don’t need to be an expert analyst, a star stock-picker, or a rocket scientist to have better investment results than most other investors. You just need to allocate your assets in the right way, and have the conviction to stick with that allocation. The big secret behind asset allocation — the secret that most sophisticated investors know and use to their benefit — is that it’s really not all that hard to do. Asset Allocation For Dummies serves as a comprehensive guide to maximizing returns and minimizing risk — while managing taxes, fees and other costs — in putting together a portfolio to reflect your unique financial goals. Jerry A. Miccolis (Basking Ridge, NJ), CFA®, CFP®, FCAS, MAAA is a widely quoted expert commentator who has been interviewed in The New York Times and the Wall Street Journal, and appeared on CBS Radio and ABC-TV. He is a senior financial advisor and co-owner of Brinton Eaton Wealth Advisors (www.brintoneaton.com), a fee-only investment management, tax advisory and financial planning firm in Madison, N.J. Dorianne R. Perrucci (Scotch Plains, NJ) is a freelance writer who has been published in The New York Times, Newsweek, and TheStreet.com, and has collaborated on several financial books, including I.O.U.S.A, One Nation, Under Stress, In Debt (Wiley, 2008).
| Author | : William Kinlaw |
| Publisher | : John Wiley & Sons |
| Total Pages | : 375 |
| Release | : 2021-07-27 |
| Genre | : Business & Economics |
| ISBN | : 1119817714 |
Discover a masterful exploration of the fallacies and challenges of asset allocation In Asset Allocation: From Theory to Practice and Beyond—the newly and substantially revised Second Edition of A Practitioner’s Guide to Asset Allocation—accomplished finance professionals William Kinlaw, Mark P. Kritzman, and David Turkington deliver a robust and insightful exploration of the core tenets of asset allocation. Drawing on their experience working with hundreds of the world’s largest and most sophisticated investors, the authors review foundational concepts, debunk fallacies, and address cutting-edge themes like factor investing and scenario analysis. The new edition also includes references to related topics at the end of each chapter and a summary of key takeaways to help readers rapidly locate material of interest. The book also incorporates discussions of: The characteristics that define an asset class, including stability, investability, and similarity The fundamentals of asset allocation, including definitions of expected return, portfolio risk, and diversification Advanced topics like factor investing, asymmetric diversification, fat tails, long-term investing, and enhanced scenario analysis as well as tools to address challenges such as liquidity, rebalancing, constraints, and within-horizon risk. Perfect for client-facing practitioners as well as scholars who seek to understand practical techniques, Asset Allocation: From Theory to Practice and Beyond is a must-read resource from an author team of distinguished finance experts and a forward by Nobel prize winner Harry Markowitz.
| Author | : CFA Institute |
| Publisher | : John Wiley & Sons |
| Total Pages | : 176 |
| Release | : 2020-11-11 |
| Genre | : Business & Economics |
| ISBN | : 1119788242 |
The Asset Allocation Workbook offers a range of practical information and exercises that reinforce the key concepts explored in Portfolio Management in Practice, Volume 2: Asset Allocation. Part of the reputable CFA Institute Investment Series, the workbook is designed to further students’ and professionals’ hands-on experience with a variety of learning outcomes, summary overview sections, and challenging problems and solutions. The workbook provides the necessary tools and latest information to help learners advance their skills in this critical facet of portfolio management. Aligning chapter-by-chapter with the main text so readers can easily pair exercises with the appropriate content, this workbook covers: Setting capital market expectations to support the asset allocation process Principles and processes in the asset allocation process, including handling ESG-integration and client-specific constraints Allocation beyond the traditional asset classes to include allocation to alternative investments The role of exchange-traded funds can play in implementing investment strategies The Asset Allocation Workbook has been compiled by experienced CFA members to give learners world-class examples based on scenarios faced by finance professionals every day. For practice on additional aspects of portfolio management, explore Volume 1: Investment Management, Volume 3: Equity Portfolio Management, and their accompanying workbooks to complete the Portfolio Management in Practice series.
| Author | : Terence Grennon |
| Publisher | : BookRix |
| Total Pages | : 63 |
| Release | : 2023-03-22 |
| Genre | : Business & Economics |
| ISBN | : 3755436655 |
During the financial crisis of 2008–2009, I worked as a co-portfolio manager, overseeing thirty billion dollars' worth of assets belonging to asset allocation funds. My experience as a professional investor taught me that I had a responsibility to my customers to do a better job of preventing the loss of their assets, and this was one of the most important lessons I took away from my career. It was unacceptable for a custodian to suffer a loss of 15–45 percent while the market as a whole suffered a loss of 60–75 percent.
| Author | : Emmanuel Jurczenko |
| Publisher | : John Wiley & Sons |
| Total Pages | : 258 |
| Release | : 2006-10-02 |
| Genre | : Business & Economics |
| ISBN | : 0470057998 |
While mainstream financial theories and applications assume that asset returns are normally distributed and individual preferences are quadratic, the overwhelming empirical evidence shows otherwise. Indeed, most of the asset returns exhibit “fat-tails” distributions and investors exhibit asymmetric preferences. These empirical findings lead to the development of a new area of research dedicated to the introduction of higher order moments in portfolio theory and asset pricing models. Multi-moment asset pricing is a revolutionary new way of modeling time series in finance which allows various degrees of long-term memory to be generated. It allows risk and prices of risk to vary through time enabling the accurate valuation of long-lived assets. This book presents the state-of-the art in multi-moment asset allocation and pricing models and provides many new developments in a single volume, collecting in a unified framework theoretical results and applications previously scattered throughout the financial literature. The topics covered in this comprehensive volume include: four-moment individual risk preferences, mathematics of the multi-moment efficient frontier, coherent asymmetric risks measures, hedge funds asset allocation under higher moments, time-varying specifications of (co)moments and multi-moment asset pricing models with homogeneous and heterogeneous agents. Written by leading academics, Multi-moment Asset Allocation and Pricing Models offers a unique opportunity to explore the latest findings in this new field of research.
| Author | : CFA Institute |
| Publisher | : John Wiley & Sons |
| Total Pages | : 640 |
| Release | : 2020-01-11 |
| Genre | : Business & Economics |
| ISBN | : 1119787971 |
Discover the latest essential resource on asset allocation for students and investment professionals. Part of the CFA Institute’s three-volume Portfolio Management in Practice series, Asset Allocation offers a deep, comprehensive treatment of the asset allocation process and the underlying theories and markets that support it. As the second volume in the series, Asset Allocation meets the needs of both graduate-level students focused on finance and industry professionals looking to become more dynamic investors. Filled with the insights and industry knowledge of the CFA Institute’s subject matter experts, Asset Allocation effectively blends theory and practice while helping the reader expand their skillsets in key areas of interest. This volume provides complete coverage on the following topics: Setting capital market expectations to support the asset allocation process Principles and processes in the asset allocation process, including handling ESG-integration and client-specific constraints Allocation beyond the traditional asset classes to include allocation to alternative investments The role of exchange-traded funds can play in implementing investment strategies An integrative case study in portfolio management involving a university endowment To further enhance your understanding of tools and techniques explored in Asset Allocation, don’t forget to pick up the Portfolio Management in Practice, Volume 2: Asset Allocation Workbook. The workbook is the perfect companion resource containing learning outcomes, summary overview sections, and challenging practice questions that align chapter-by-chapter with the main text.
