| Description |
1 online resource |
| Contents |
Cover -- Title Page -- Copyright -- Contents -- Foreword -- Preface -- Section One: Basics of Asset Allocation -- Chapter 1: What Is an Asset Class? -- Stable Aggregation -- Investable -- Internally Homogeneous -- Externally Heterogeneous -- Expected Utility -- Selection Skill -- Cost-Effective Access -- Potential Asset Classes -- References -- Notes -- Chapter 2: Fundamentals of Asset Allocation -- The Foundation: Portfolio Theory -- Practical Implementation -- References -- Notes -- Section Two: Fallacies of Asset Allocation -- Chapter 3: The Importance of Asset Allocation -- Fallacy: Asset Allocation Determines More Than 90 Percent of Performance -- The Determinants of Portfolio Performance -- The Behavioral Bias of Positive Economics -- The Samuelson Dictum -- References -- Notes -- Chapter 4: Time Diversification -- Fallacy: Time Diversifies Risk -- Samuelson's Bet -- Time, Volatility, and Probability of Loss -- Time and Expected Utility -- Within-Horizon Risk -- A Preference-Free Contradiction to Time Diversification -- The Bottom Line -- References -- Notes -- Chapter 5: Error Maximization -- Fallacy: Optimized Portfolios Are Hypersensitive to Input Errors -- The Intuitive Argument -- The Empirical Argument -- The Analytical Argument -- The Bottom Line -- References -- Notes -- Chapter 6: Factors -- Fallacy: Factors Offer Superior Diversification and Noise Reduction -- What Is a Factor? -- Equivalence of Asset Class and Factor Diversification -- Noise Reduction -- Where Does This Leave Us? -- References -- Notes -- Chapter 7: 1/N -- Fallacy: Equally Weighted Portfolios Are Superior to Optimized Portfolios -- The Case for 1/N -- Setting the Record Straight -- Empirical Evidence in Defense of Optimization -- Practical Problems with 1/N -- Broken Clock -- The Bottom Line -- References -- Note -- Section Three: Challenges to Asset Allocation |
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Chapter 8: Necessary Conditions for Mean-Variance Analysis -- The Challenge -- Departures from Elliptical Distributions -- Departures from Quadratic Utility -- Full-Scale Optimization -- The Curse of Dimensionality -- Applying Full-Scale Optimization -- Summary -- References -- Notes -- Chapter 9: Constraints -- The Challenge -- Wrong and Alone -- Mean-Variance-Tracking Error Optimization -- References -- Note -- Chapter 10: Currency Risk -- The Challenge -- Why Hedge? -- Why Not Hedge Everything? -- Linear Hedging Strategies -- Nonlinear Hedging Strategies -- Economic Intuition -- References -- Notes -- Chapter 11: Illiquidity -- The Challenge -- Shadow Assets and Liabilities -- Expected Return and Risk of Shadow Allocations -- Other Considerations -- Case Study -- The Bottom Line -- Appendix -- References -- Notes -- Chapter 12: Risk in the Real World -- The Challenge -- End-of-Horizon Exposure to Loss -- Within-Horizon Exposure to Loss -- Regimes -- The Bottom Line -- References -- Notes -- Chapter 13: Estimation Error -- The Challenge -- Traditional Approaches to Estimation Error -- Stability-Adjusted Optimization -- Building a Stability-Adjusted Return Distribution -- Determining the Optimal Allocation -- Empirical Analysis -- The Bottom Line -- References -- Notes -- Chapter 14: Leverage versus Concentration -- The Challenge -- Leverage in Theory -- Leverage in Practice -- The Bottom Line -- References -- Notes -- Chapter 15: Rebalancing -- The Challenge -- The Dynamic Programming Solution -- The Markowitz-van Dijk Heuristic -- The Bottom Line -- References -- Notes -- Chapter 16: Regime Shifts -- The Challenge -- Predictability of Return and Risk -- Regime-Sensitive Allocation -- Tactical Asset Allocation -- The Bottom Line -- Appendix: Baum-Welch Algorithm -- References -- Notes -- Section Four: Addendum -- Chapter 17: Key Takeaways |
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Chapter 18: Statistical and Theoretical Concepts -- Discrete and Continuous Returns -- Arithmetic and Geometric Average Returns -- Standard Deviation -- Correlation -- Covariance -- Covariance Invertibility -- Maximum Likelihood Estimation -- Mapping High-Frequency Statistics onto Low-Frequency Statistics -- Portfolios -- Probability Distributions -- The Central Limit Theorem -- The Normal Distribution -- Higher Moments -- The Lognormal Distribution -- Elliptical Distributions -- Probability of Loss -- Value at Risk -- Utility Theory -- Sample Utility Functions -- Alternative Utility Functions -- Expected Utility -- Certainty Equivalents -- Mean-Variance Analysis for More Than Two Assets -- Equivalence of Mean-Variance Analysis and Expected Utility Maximization -- Monte Carlo Simulation -- Bootstrap Simulation -- References -- Note -- Chapter 19: Glossary of Terms -- Index -- EULA |
| Summary |
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 |
| Bibliography |
Includes bibliographical references and index |
| Notes |
Print version record and CIP data provided by publisher |
| Subject |
Asset allocation.
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Portfolio management.
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BUSINESS & ECONOMICS -- Finance.
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Asset allocation
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Portfolio management
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| Form |
Electronic book
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| Author |
Kritzman, Mark P., author.
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Turkington, David, 1983- author.
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| LC no. |
2017019082 |
| ISBN |
9781119402428 |
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1119402425 |
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9781119402459 |
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111940245X |
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1119397804 |
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9781119397809 |
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