Frontiers of Modern Asset Allocation

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."

Autorentext

PAUL D. KAPLAN is quantitative research director at Morningstar Europe and is responsible for the quantitative methodologies behind Morningstar's fund analysis, indexes, advisor tools, and other services. Dr. Kaplan conducts research on investment style analysis, performance and risk measurement, asset allocation, retirement-income planning, portfolio construction, index methodologies, and alternative investments. He led the development of quantitative methodologies behind the Morningstar Rating for funds (Morningstar's star rating), the Morningstar Style Box, and the Morningstar family of indexes. Many of Dr. Kaplan's research papers have been published in professional books and publications such as the Financial Analysts Journal, the Journal of Portfolio Management, the Journal of Wealth Management, the Journal of Investing, the Journal of Performance Measurement, the Journal of Indexes, and the Handbook of Equity Style Management. He received the 2008 Graham and Dodd Award and won a Graham and Dodd Award of Excellence in 2000.

Zusammenfassung
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."

Inhalt

Foreword xi

Introduction xxiii

A Note on Expected Return and Geometric Mean xxv

Acknowledgments xxxi

PART ONE Equities

CHAPTER 1 Purity of Purpose: How Style-Pure Indexes Provide
Useful Insights 7

CHAPTER 2 Investing in Europe with Style: Why Investors in
Europe Would Benefit From Constructing Portfolios Through the Prism
of Style 15

CHAPTER 3 Why Fundamental Indexation Might--or Might
Not--Work 21

CHAPTER 4 The Fundamental Debate: Two Experts Square Off on the
Big Issues Surrounding Fundamentally Weighted Indexes 39

CHAPTER 5 Collared Weighting: A Hybrid Approach to Indexing
51

CHAPTER 6 Yield to Investors? A Practical Approach to Building
Dividend Indexes 63

CHAPTER 7 Holdings-Based and Returns-Based Style Models 71

CHAPTER 8 Estimates of Small Stock Betas Are Much Too Low
103

CHAPTER 9 A Macroeconomic Model of the Equity Risk Premium
117

PART TWO Fixed Income, Real Estate, and
Alternatives

CHAPTER 10 Good and Bad Monetary Economics, and Why Investors
Need to Know the Difference 133

CHAPTER 11 Inflation, Gilt Yields, and Economic Policy 143

CHAPTER 12 Reverse Mean-Variance Optimization for Real Estate
Asset-Allocation Parameters 147

CHAPTER 13 The Long and Short of Commodity Indexes 157

CHAPTER 14 Less Alpha and More Beta Than Meets the Eye 175

CHAPTER 15 Venture Capital and its Role in Strategic Asset
Allocation 179

PART THREE Crashes and Fat Tails

CHAPTER 16 One-and-a-Quarter Centuries of Stock Market Drawdowns
193

CHAPTER 17 Stock Market Bubbles and Crashes: A Global Historical
and Economic Perspective 199

CHAPTER 18 De ja` Vu All Over Again 211

CHAPTER 19 De ja` Vu Around the World 223

CHAPTER 20 Getting a Read on Risk: A Discussion with Roger
Ibbotson, George Cooper, and Beno^it Mandelbrot on the
Crisis and Risk Models 239

PART FOUR Doing Asset Allocation

CHAPTER 21 Does Asset-Allocation Policy Explain 40 Percent, 90
Percent, or 100 Percent of Performance? 253

CHAPTER 22 Asset-Allocation Models Using the Markowitz Approach
267

CHAPTER 23 Asset Allocation with Annuities for Retirement Income
Management 275

CHAPTER 24 MPT Put Through the Wringer: A Debate Between Steven
Fox and Michael Falk 303

CHAPTER 25 Updating Monte Carlo Simulation for the Twenty-First
Century 311

CHAPTER 26 Markowitz 2.0 325

CHAPTER 27 What Does Harry Markowitz Think? A Discussion with
Harry Markowitz and Sam Savage 351

Afterword 367

About the Author 375

Index 377