Mean Variance Optimization
Mean-variance optimization (MVO) is the most common approach to asset allocation. It assumes investors are risk averse, so they prefer more …
Strategic Asset Allocation
Strategic asset allocation is long term in nature; hence, the weights are called targets and the portfolio represented by the strategic asset …
Approaches to Asset Allocation
Asset-only approaches to asset allocation focus solely on the asset side of the investor’s balance sheet. Liabilities are not explicitly …
Economic Balance Sheet
An Economic Balance Sheet includes conventional assets and liabilities as well as extended portfolio assets and liabilities that are relevant …
Influence on Market Behavior
Anomalies are identified by persistent abnormal returns that differ from zero and are predictable in direction. Momentum Effect A pattern …
Committee Decision Making Implications
Many investment decisions are made in a group setting (e.g., stock recommendations by research committees, analysts working in a team …
Analyst Forecasting Implications
Studies have shown that experts in many fields persistently make forecasting errors arising from their behavioral biases. Investment analysts are …
Portfolio Construction Implication
Behavioral biases may affect how investors construct portfolios from the securities available to them. One way to consider this issue …
Adviser-Client Relationship Implications
The success of the typical client/adviser relationship can be measured in four areas, and each one is enhanced by incorporating …
Uses and Limitations of Classifying Investors
In recent decades, financial service professionals and researchers have been attempting to classify investors by their psychographic characteristics—in other words, …