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Index
Cover
Series
Title Page
Copyright
Dedication
Foreword
ARE STOCKS RISKY IN THE LONG RUN?
SURVIVAL BIAS: DID YOU KNOW IN ADVANCE THAT THE UNITED STATES AND UNITED KINGDOM WOULD SUCCEED?
SAMPLE PERIOD BIAS: WERE THE PAST 200 YEARS REALLY TYPICAL?
Introduction
A Note on Expected Return and Geometric Mean
MATHEMATICAL FORMULATION
NUMERICAL EXAMPLES
Acknowledgments
PART ONE: Equities
EQUITY STYLES AS ASSET CLASSES
FLAWS OF FUNDAMENTAL INDEXATION
ESTIMATION ISSUES
CHAPTER 1: Purity of Purpose: How Style-Pure Indexes Provide Useful Insights
THE PAST TO PRESENT
THE STATE OF THE ART
WHAT REALLY MATTERS
WHAT THIS MEANS FOR INVESTORS
CONCLUSION
CHAPTER 2: Investing in Europe with Style
U.S. STYLE: A HISTORY
STYLE INVESTING IN EUROPE
INTRODUCING MORNINGSTAR EUROPEAN STYLE INDEXES
CHAPTER 3: Why Fundamental Indexation Might—or Might Not—Work
THE INDEPENDENCE ASSUMPTION
WHY FUNDAMENTAL INDEXATION MIGHT WORK
THE VALUE BIAS
TOWARD A BETTER WEIGHTING METHOD
CONCLUSION
APPENDIX 3A: DERIVATION OF OPTIMAL COMBINATION OF FUNDAMENTAL AND MARKET VALUES
CHAPTER 4: The Fundamental Debate: Two Experts Square Off on the Big Issues Surrounding Fundamentally Weighted Indexes
CHAPTER 5: Collared Weighting: A Hybrid Approach to Indexing
COLLARED WEIGHTING METHODOLOGY
DATA
IMPACT OF COLLARING
PERFORMANCE
TURNOVER AND IMPACT COSTS
CONCLUSION
APPENDIX 5A: THE MATHEMATICS OF COLLAR WEIGHTING
APPENDIX 5B: FUNDAMENTAL MEASURES OF COMPANY SIZE
CHAPTER 6: Yield to Investors? A Practical Approach to Building Dividend Indexes
BACK TO BASICS
APPLYING THE PRINCIPLES
A NEW APPROACH
THE AVAILABLE-DIVIDEND PHILOSOPHY
VALUE OF SCALABILITY
TURNOVER
CHOOSING THE RIGHT TOOLS
CONCLUSION
CHAPTER 7: Holdings-Based and Returns-Based Style Models
REVIEW OF STYLE ANALYSIS
OVERVIEW OF THIS STUDY
THE MORNINGSTAR EQUITY-STYLE MODEL
RETURNS-BASED STYLE ANALYSIS
DATA AND CALCULATIONS
RESULTS
REASONS WHY RETURNS-BASED STYLE ANALYSIS MIGHT BREAK DOWN
CONCLUSION
APPENDIX 7A: CONFIDENCE REGIONS FOR ESTIMATE STYLE CENTROIDS
CHAPTER 8: Estimates of Small Stock Betas Are Much Too Low
FIRM SIZE AND BETA ESTIMATION
BETA AS A PREDICTOR OF RETURNS
BETA AND THE SIZE EFFECT
CONCLUSION
CHAPTER 9: A Macroeconomic Model of the Equity Risk Premium
METHODOLOGY
DATA
REGRESSION RESULTS
THE COST OF CAPITAL
CONCLUSION
PART TWO: Fixed Income, Real Estate, and Alternatives
CHAPTER 10: Good and Bad Monetary Economics, and Why Investors Need to Know the Difference
GOOD NEWS IS BAD NEWS?
MYTHS ABOUT MONEY, INFLATION, AND THE ECONOMY
WHY BAD MONETARY ECONOMICS THRIVES IN THE POPULAR IMAGINATION
GOOD ECONOMICS VERSUS BAD ECONOMICS IN GENERAL
GOOD AND BAD MONETARY ECONOMICS
HOW MONETARY ECONOMICS BECAME CONFUSED
THE RETURN OF SOUND MONETARY ECONOMICS AMONG ACADEMIC ECONOMISTS
WHAT MONETARY ECONOMICS REALLY SAYS
CHAPTER 11: Inflation, Gilt Yields, and Economic Policy
CHAPTER 12: Reverse Mean-Variance Optimization for Real Estate Asset-Allocation Parameters
ASSUMPTIONS AND INPUTS
MARKET-CAP WEIGHTS
GEOMETRIC AND ARITHMETIC MEANS
RESULTS
CHAPTER 13: The Long and Short of Commodity Indexes
NO SUCH THING AS COMMODITY BETA
NOT ALL INDEXES ARE ALIKE
SOURCES OF EXCESS RETURN
THE SPOT COMMODITY MARKETS
THE FUTURES MARKET
THE STORAGE MARKET
THE STORAGE MARKET AND THE SLOPE OF THE FUTURES PRICE CURVE
BUILDING A BETTER STRATEGY
THE IMPORTANCE OF TERM STRUCTURE AND CORRESPONDING LINKING FACTOR
THE CONSTRUCTION OF THE LONG/SHORT COMMODITY INDEXES
HOW THEY STACK UP
THE LONG AND SHORT OF IT
CHAPTER 14: Less Alpha and More Beta Than Meets the Eye
CHAPTER 15: Venture Capital and its Role in Strategic Asset Allocation
DATA
THE MODEL
ESTIMATION OF AVERAGE RETURN, STANDARD DEVIATION, AND CORRELATION
RESULTS
CONCLUSION
PART THREE: Crashes and Fat Tails
CHAPTER 16: One-and-a-Quarter Centuries of Stock Market Drawdowns
TRUTH IN NUMBERS
CHAPTER 17: Stock Market Bubbles and Crashes: A Global Historical and Economic Perspective
THE U.S. RECORD
THE U.K. RECORD
THE JAPANESE RECORD
DRAWDOWNS DURING THE LONG BOOM (1982 TO 2007)
WHY DO CRASHES OCCUR?
ECONOMIC THOUGHT AND FINANCIAL CRISES
2007 TO 2009 CRASH
WHAT HAVE WE LEARNED?
CHAPTER 18: Déjà Vu All Over Again
MEASURING RISK: THE STANDARD MODEL
AN ALTERNATIVE APPROACH: LOG-STABLE DISTRIBUTIONS
RISK MEASURES VERSUS RISK MODELS
CONCLUSION
CHAPTER 19: Déjà Vu Around the World
MODELING RISK: THE STANDARD MODEL
AN ALTERNATIVE APPROACH: LOG-STABLE DISTRIBUTIONS
RISK MEASURES
CONCLUSION
APPENDIX 19A: LOG-STABLE ANALYSIS
CHAPTER 20: Getting a Read on Risk: A Discussion with Roger Ibbotson, George Cooper, and Benoît Mandelbrot on the Crisis and Risk Models
PART FOUR: Doing Asset Allocation
CHAPTER 21: Does Asset-Allocation Policy Explain 40 Percent, 90 Percent, or 100 Percent of Performance?
FRAMEWORK
DATA
QUESTIONS AND ANSWERS
CONCLUSION
CHAPTER 22: Asset-Allocation Models Using the Markowitz Approach
ASSUMPTIONS OF MEAN-VARIANCE ANALYSIS
ILLUSTRATION OF MEAN-VARIANCE ANALYSIS
OBJECTIVE FUNCTIONS
CAVEATS AND CONCLUSION
CHAPTER 23: Asset Allocation with Annuities for Retirement Income Management
THE SIMULATION APPROACH TO WITHDRAWAL MODELS
LITERATURE REVIEW
A MODEL WITHOUT ANNUITIES
ADDING ANNUITIES TO THE MODEL
EXTENSIONS TO THE MODEL
SUMMARY
APPENDIX 23A: MODELING INFLATION
CHAPTER 24: MPT Put Through the Wringer: A Debate Between Steven Fox and Michael Falk
CHAPTER 25: Updating Monte Carlo Simulation for the Twenty-First Century
AN EARLY APPLICATION OF MONTE CARLO SIMULATION TO ASSET ALLOCATION
IBBOTSON AND SINQUEFIELD WITHOUT MONTE CARLO SIMULATION
A TWENTY-FIRST CENTURY UPDATE
IMPLICATIONS FOR TOMORROW
WHERE TO FIND IT
APPENDIX 25A: TECHNICAL DETAILS ON DISTRIBUTION STRINGS
CHAPTER 26: Markowitz 2.0
GOING SUPERSONIC
THE FLAW OF AVERAGES
ADDING AFTERBURNERS
THE SCENARIO APPROACH
REWARD OVER THE LONG TERM
DOWNSIDE OF STANDARD DEVIATION
SCENARIOS VERSUS CORRELATION
ULTRASONIC STATISTICAL TECHNOLOGY
THE NEW EFFICIENT FRONTIER
APPENDIX 26A: TECHNICAL DETAILS OF MARKOWITZ 2.0
CHAPTER 27: What Does Harry Markowitz Think?
DE FINETTI'S SCOOP
“IT'S JIMMIE SAVAGE'S SON!”
ASSET-ALLOCATION INFRASTRUCTURE
APPLYING SCENARIOS TO PORTFOLIOS
Afterword
About the Author
Index
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