Goals-Based and Miscellaneous Approaches
The goals-based approach to asset allocation is useful for individual investors, who typically have a number of (sometimes conflicting) objectives, with different …
portfolio management
Liability Relative Asset Allocations
Liability-relative asset allocation is aimed at the general issue of rendering decisions about asset allocation in conjunction with the investor’s …
Factor Based Asset Allocation
An alternative approach used by some practitioners is to move away from an opportunity set of asset classes to an opportunity set …
Risk Budgeting Approach
There are three aspects to risk budgeting: The risk budget identifies the total amount of risk and allocates the risk …
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, …
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 …
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 …