Category: Uncertainty
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Market Timing or Dynamic Risk Management?
Institutional investors have long been indoctrinated with the notions of stocks for the long run and the importance of remaining fully invested. As I touched on stocks for the long run in an earlier post, in this one I will address remaining fully invested. The argument in favor of remaining fully invested went like…
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Looming Demographic Trends and Their Investment Implications
Another popular session I moderated at the Society of Actuaries annual meeting was #132, Looming Demographic Trends and Their Investment Implications. This session featured Jason Hsu, CIO of Research Affiliates, and Richard Hokenson, of Hokenson & Company. Dr. Hsu had the floor for the first 30 minutes. He presented Research Affiliates’ increasingly renowned view on…
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An Inconvenient Truth about Stocks for the Long Run
At last week’s Society of Actuaries annual meeting I moderated several sessions to which I have alluded in this space before. One of the best received presentations was by Lubos Pastor from the University of Chicago Booth School of Business. Pastor, a graduate of Wharton and student of Jeremy Siegel, presented a wake-up call for…
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Why Use Monte Carlo Simulations? To Guard Against Tunnel Vision
Sam Savage, author of “The Flaw of Averages,” is a missionary for making business decisions using probability distributions instead of point estimates. I’m an avid disciple, which might surprise some who read the previous post. The earlier post, “Modeling Expected Returns: The Future Is Not What It Used to Be” described a formula derived…
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Modeling Expected Returns: The Future Is Not What It Used to Be
Statistical methods that most practitioners get wrong Do you use financial planning software which projects future returns to assist you with asset allocation? Next month I will moderate several sessions at the Society of Actuaries (SOA) 2011 Annual meeting for the SOA’s Investment Section. A consistent thread running through several of these sessions will…
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Risk parity “unproven”? Where is the list of “proven” allocation strategies?
Just spotted a survey from aiCIO that refers to risk parity as an “innovative but unproven” allocation strategy. The word “unproven” is pejorative and unduly presumptive. Proof of what? Compared to what? Has aiCIO identified examples of “proven” allocation strategies? All allocation strategies of which I’m aware involve investing in assets that entail risk of…
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Real World Problems versus Homework Problems
Supposedly, one of the reasons so many statistical analysis have been conducted on financial markets is because that’s where the data is. Millions of finance students have learned how to apply financial models using historical data from the real world. However the problems they solved were homework problems, not real world problems. Real world problems…