Frontiers of Modern Asset Allocation (Wiley Finance)

You looking to find the "Frontiers of Modern Asset Allocation (Wiley Finance)" Good news! You can purchase Frontiers of Modern Asset Allocation (Wiley Finance) with secure price and compare to view update price on this product. And deals on this product is available only for limited time.

   

Product Description

Innovative approaches to putting asset allocation into practice

Building on more than 15 years of asset-allocation research, Paul D. Kaplan, who led the development of the methodologies behind the Morningstar Rating(TM) and the Morningstar Style Box(TM), tackles key challenges investor professionals face when putting asset-allocation theory into practice. This book addresses common issues such as:

• How should asset classes be defined?
• Should equities be divided into asset classes based on investment style, geography, or other factors?
• Should asset classes be represented by market-cap-weighted indexes or should other principles, such as fundamental weights, be used?
• How do actively managed funds fit into asset-class mixes?

Kaplan also interviews industry luminaries who have greatly influenced the evolution of asset allocation, including Harry Markowitz, Roger Ibbotson, and the late Benoit Mandelbrot. Throughout the book, Kaplan explains allocation theory, creates new strategies, and corrects common misconceptions, offering original insights and analysis. He includes three appendices that put theory into action with technical details for new asset-allocation frameworks, including the next generation of portfolio construction tools, which Kaplan dubs "Markowitz 2.0."

Frontiers of Modern Asset Allocation (Wiley Finance) Review

"Historical statistics should not be blindly fed into an optimizer."

This quote summarizes the spirit of this book by Paul D. Kaplan, Ph.D. the Director of Quantitative Analysis at Morningstar. I published a full review of this book here on [..] on February 8, 2012: [..]

Below are some excerpts from this review.

The book covers a wide range of topics that span two decade's of Kaplan's research. The 27 chapters are organized in four sections:
1. Equities (index construction, small-stock betas, etc.)
2. Fixed income, Real Estate, and Alternatives
3. Crashes and Fat Tails
4. Doing Asset Allocation

Markowitz and Optimization
I found Kaplan at his best when discussing asset allocation, the fourth section of the book. He begins with a brief overview of Modern Portfolio Theory, which was based on the 1952 paper by Harry Markowitz. This pioneering work on asset allocation, uncertainty, and diversification led to Modern Portfolio Theory (MPT), and to the efficient frontier, which shows the trade-off between risk and return as a series of optimal portfolios. MPT also led to portfolio optimization, also called Mean Variance Optimization (MVO), and to the "fish hook" charts that adorn many client presentations.

The Limitations of Mean Variance Optimization
Anyone who has worked with portfolio optimization knows that the results are extremely sensitive to the inputs. This leads to "estimation errors," a wonderful euphemism for what could be an investment catastrophe. Consequently, Kaplan emphasizes the importance of the assumptions for expected returns, standard deviation, and the correlation of asset classes. He repeatedly notes that optimizers are extremely sensitive to these assumptions. Kaplan also cautions against cutting our asset class slices too thin: If the asset classes are too similar, high correlations cause the correlation matrix to become "ill-conditioned," and small moves along the efficient frontier result in large changes in asset allocation. Kaplan's work suggests that optimization has limits when used for thin slices of the same wedge, as when stocks are divided into categories such as micro-cap, small-cap, mid-cap, large-cap, and mega-cap.

Markowitz 2.0
In chapter 26, Kaplan addresses four key problems with the original Markowitz model, and he offers solutions to each. Kaplan and co-author Sam Savage of Stanford University dub this "Markowitz 2.0," and Harry Markowitz himself approves this nomenclature in an interview (364). Kaplan's discussion of the limitations is unusual, since he actually offers specific solutions. Most critics of Mean Variance Optimization and Modern Portfolio Theory do not go this far, and Kaplan is on solid ground with each of his suggestions.

The Bottom Line
The most critical takeaway I would offer potential readers is this: Paul Kaplan is not only eminently capable and rigorous, but he has intellectual humility and integrity--I trust his judgment and his conclusions.

Most of the consumer Reviews tell that the "Frontiers of Modern Asset Allocation (Wiley Finance)" are high quality item. You can read each testimony from consumers to find out cons and pros from Frontiers of Modern Asset Allocation (Wiley Finance) ...