Posts that discuss financial theory, probability, statistics, risk/return and similar concepts
Amazon recently introduced the Echo Look, which lets you use the digital assistant Alexa to answer questions, including a style guide, where you can get suggestions on what looks better on you. Theoretically, an individual can achieve a similar Read More …
Over the last several years, I have explored the impact of behavioral and structural biases in markets, as well as how they impact investment decision making. Recently I have been reading about the physiological changes that occur in our body Read More …
Chicago Tribune recently wrote about how the decision to reduce expected return assumption from 7.5% to 7.0% for the Illinois Teachers Retirement System resulted in the governor calling for approximately $400 million in additional taxes. While the political positioning behind Read More …
Earlier this year I had written about the behavioral implications of high expected returns (see High Cost of High expected returns). Two recent articles in the Economist and Bloomberg Gadfly highlight the increasing awareness that a more informed dialog is Read More …
Stability, not low rates is likely to drive spending Uncertainty about the future leads to conservative spending lower employee benefits and higher future expenses Unreliable investment returns Central banks are doing what they can, but spending is out of their hands, and Read More …
Using asset returns to discount liabilities has important behavioral implications Choice of a discount rate should not impact investment strategy Pensions and endowments might create issues for themselves by relying on high expected returns How do you think Read More …
On February 4th, I had the good fortune to lead a lively breakfast discussion on Smart Beta, hosted by Moodys Analytics’ subsidiary Copal Amba. While most of the attendees were from the product side, i.e. asset managers, there was a Read More …
When making an assumption on the expected return of an asset, one is making an implicit call on the valuation of that asset. There are several textbooks written on valuation, and smart individuals have built successful careers on sophisticated valuation Read More …
The investment and asset allocation decisions and choices that we make are a function of our desired outcome, and the constraints that are placed. In a stylized world we can try to build out an elegant theory and assume we Read More …
Especially in asset allocation, the general industry is trained toward thinking about “expected returns”. While mathematically expected returns are generally the average / mid-point of a range of likely outcomes, we tend to take the average as something that Read More …