Investment Policy and Asset Allocation
Behavioral biases can and should be accounted for by investors and their advisers in the investment policy development and asset …
CFA
Emotional Biases
Loss-aversion bias arises from feeling more pain from a loss than pleasure from an equal gain. Kahneman and Tversky focused on the …
Cognitive Errors
Cognitive errors are due primarily to faulty reasoning and could arise from a lack of understanding proper statistical analysis techniques, information …
Market Behavior and Portfolio Construction
Traditional Perspectives on Market Behavior and Portfolio Construction Much of modern portfolio theory is premised on the efficient market hypothesis (EMH). The …
Decision Making
Decision Theory Decision theory is concerned with identifying values, probabilities, and other uncertainties relevant to a given decision and using …
Behavioral Finance vs Traditional Finance Overview
Traditional finance is grounded in neoclassical economics. Within traditional finance, individuals are assumed to be risk-averse, self-interested utility maximizers. Investors …
Asset Allocation Approaches
An approach to determining the desired allocation to the alternative asset classes is to make the initial asset allocation decision …
The Investment Opportunity Set
Traditional approaches to defining the investment opportunity set include classifying asset groups by liquidity or by how they perform over economic cycles. …
Role of Alternative Investments
Below is a framework for how the common alternative strategies are generally perceived to affect the risk/return profile of a …
Portfolio Contribution of Hedge Fund Strategies
When a 20% allocation to hedge funds is added to a traditional 60% stock/40% bond investment portfolio, the resulting allocation …