...Strategic Asset Allocation: Determining the Optimal Portfolio with Ten Asset Classes Niels Bekkers Mars The Netherlands Ronald Q. Doeswijk* Robeco The Netherlands Trevin W. Lam Rabobank The Netherlands October 2009 Abstract This study explores which asset classes add value to a traditional portfolio of stocks, bonds and cash. Next, we determine the optimal weights of all asset classes in the optimal portfolio. This study adds to the literature by distinguishing ten different investment categories simultaneously in a mean-variance analysis as well as a market portfolio approach. We also demonstrate how to combine these two methods. Our results suggest that real estate, commodities and high yield add most value to the traditional asset mix. A study with such a broad coverage of asset classes has not been conducted before, not in the context of determining capital market expectations and performing a mean-variance analysis, neither in assessing the global market portfolio. JEL classification: G11, G12 Key words: strategic asset allocation, capital market expectations, mean-variance analysis, optimal portfolio, global market portfolio. This study has benefited from the support and practical comments provided by Jeroen Beimer, Léon Cornelissen, Lex Hoogduin, Menno Meekel, Léon Muller, Laurens Swinkels and Pim van Vliet. Special thanks go to Jeroen Blokland and Rolf Hermans for many extensive and valuable discussions. We thank Peter Hobbs for providing the detailed segmentation...
Words: 10998 - Pages: 44
...The article under review was accessed via http://www.nber.org/papers/w10595 in a clear and well set out form. It was retrieved as a PDF document. The article was introduced with the introduction that differentiate commodity futures from stocks, bonds and other conventional assets. The article also explains in details the mechanics of investment in commodity futures and providing data on its historical returns in comparisons with other assets classes. The articles also elaborated the effects of inflation to commodity futures. Citation Gary Gorton & K. Geert Rouwenhorst (June 2000). Facts and Fantasies About Commodity Futures retrieved from: http://www.nber.org/papers/w10595 Introduction This review critically reviews the article ‘Facts and Fantasies About Commodity Futures which was retrieved from http://www.nber.org/papers/w10595. The review will firstly summarize the article. Secondly, it will briefly analyze the effectiveness of the article’s structure, investigating how the information is set out and whether the reader can access it efficiently. Thirdly, the review will critique the article, evaluating its accuracy, currency, relevance, objectivity and stability. The review will also judge the article’s accessibility and credibility. Overall the article was well written, clear and relevant. Brief Summary This articles was written to study simple properties of commodity futures as an asset class. Apart from explaining the mechanics of investment in commodity...
Words: 773 - Pages: 4
...Capital Markets and Investment Banking Process Paper FIN 402 May 6, 2012 Alger Marable Capital Markets and Investment Banking Process Paper Investment banking is a crucial part of our global business environment. Investments, banking, and other capital markets now have a valuable role in business and everyone’s daily lives. There are several strategies and methods that can be identified for effective and productive investment banking processes. Choosing an investment bank or firm can depend on the investor themselves. Some processes and guidelines can vary from firm to firm, this would all depend on the investor and the financial experts and their preferences. Portfolio construction is an important task which involved expertise from a financial expert. Investment Banking and IPO Process Investment banking contains enables several functions for be executed, such as: lending and investing assets, providing advice about investments and acquisitions, research and development about securities, capital markets, and bonds. For example, Morgan Stanley provides global currency, precious metals, insurance, and structured investments that are tailored to market trends and specific risk allocated decision making regarding the individuals portfolio. Investment banking also incorporates other important roles such as analysis of financial performance and operations. Financial transactions can be done as well in investment...
Words: 1151 - Pages: 5
...LOVELY PROFESSIONAL UNIVERSITY TERM PAPER ON Extending UML to Support Domain Analysis SUBMITTED TO:- SUBMITTED BY:- Mr. SANDEEP SINGH AKANSHU KUMAR Reg No:-11112286 ROLL No:- A21 SECTION:- K1107 Abstract:- The process of modelling and developing commonality and variability for system families should be supported by suitable methods and notations. The object-oriented methods and their notations, which are used at present, focus on the development of a single system at a time. In this paper we analyse feature models as a representation of the common parts and variants contained in a system family, and propose using a feature diagram as a basic representation of commonality, variability and dependencies. We examine various approaches to customizing the standard modelling language UML to model system families and propose how to extend the UML for the purposes of modelling variants in object-oriented analysis and design techniques. We recommend the use of UML standard lightweight extensibility mechanisms (stereotypes combined with tagged values) without changing the UML metamodel. This enables us to join the advantages of feature models with UML and provides the traceability of a concept throughout...
Words: 3255 - Pages: 14
...Revenue Procedures,Revenue Procedure 87-56,Internal Revenue Service,(Jan. 1, 1987) Revenue Procedure 87-56, January 1, 1987. Obsoleting in part: Rev. Proc. 83-35 Clarified and modified by: Rev. Proc. 88-22 Accelerated cost recovery: Recovery classes: Class lives: Recovery periods.– Recovery classes, class lives, and recovery periods for assigned property are set out. Rev. Proc. 83-35 obsoleted for property subject to section 168, as added by the Tax Reform Act of 1986. BACK REFERENCES: 87FED ¶1732A, 87FED ¶1732D.0045, 87FED ¶1732D.008, 87FED ¶1732D.08, 87FED ¶1732D.16, 87FED ¶1825.01 and 87FED ¶2732D.007. SECTION 1. PURPOSE The purpose of this revenue procedure is to set forth the class lives of property that are necessary to compute the depreciation allowances available under section 168 of the Internal Revenue Code, as amended by section 201(a) of the Tax Reform Act of 1986 (Act), 1986-3 (Vol. 1) C.B. 38. Rev. Proc. 87-57, page 687, this Bulletin, describes the applicable depreciation methods, applicable recovery periods, and applicable conventions that must be used in computing depreciation allowances under section 168. SEC. 2. GENERAL RULES OF APPLICATION .01 In general. This revenue procedure specifies class lives and recovery periods for property subject to depreciation under the general depreciation system provided in section 168(a) of the Code or the alternative depreciation system provided in section 168(g). .02 Definition of Class Life. Except...
Words: 2885 - Pages: 12
...Quizzes FOR MORE CLASSES VISIT www.acc557tutor.com Please check the details below ACC 557 Week 3 Assignment 1 Review of Accounting Ethics (2 Paper) ACC 557 Week 6 Assignment 2 You Are an Entrepreneur! (2 Paper) ACC 557 Week 10 Assignment 3 You Are an Investment Analyst (2 Papers) ACC 557 Week 1, Chapter 1 (E1-4, E1-7, E1-11, P1-2A) ACC 557 Week 2 Chapter 2 (E2-6, E2-9, E2-11, P2-2A) ACC 557 Week 2 Chapter 3 (E3-6, E3-7, E3-11, P3-2A) ACC 557 Week 3 Chapter 4 (E4-1,E4-5, E4-7, E4-13, P4-4A) ACC 557 Week 4 Chapter 6 (E6-1,E6-10,E6-14,P6-3A) ACC 557 Week 5 Chapter 7 (E7-5 E7-7 E7-14 P7-3A) ------------------------------------------------------------------------------- ACC 557 Midterm Part 1 FOR MORE CLASSES VISIT www.acc557tutor.com ACC 557 Midterm Part 1 Question 1 What is the order in which assets are generally listed on a classified balance sheet? Question 2 The information for preparing a trial balance on a worksheet is obtained from Question 3 The most efficient way to accomplish closing entries is to Question 4 All of the following are property, plant, and equipment except ------------------------------------------------------------------------------- ACC 557 Week 1, Chapter 1 (E1-4, E1-7, E1-11, P1-2A) FOR MORE CLASSES VISIT www.acc557tutor...
Words: 1027 - Pages: 5
...Running head: ASSET CLASSES Asset Classes Theora Mcmillan FIN 402- Investment Fundamentals and Portfolio Management University of Phoenix January 16, 2011 Alger Marable Abstract This paper will serve to determine the asset class for Bank of America, a Dow 30 organization and explain how that classification and the current investment environment affect organizational decisions concerning portfolio composition. Asset Classes An asset class is a group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations (Investopedia, 2011). Financial markets are traditionally segmented into money markets and capital markets. Money market instruments include short-term, marketable, liquid, low-risk debt securities. Money market instruments sometimes are called cash equivalents. Capital markets, in contrast, include longer-term and riskier securities. Securities in the capital market are much more diverse than those found within the money market (Bodie, Kane, Marcus, 2008). Bank of America is an equity fund, more specifically, a common stock. Common stock represent ownership shares in a corporation. Each share of common stock entitles its owners to one vote on any matters of corporate governance put to a vote at the corporation’s annual meeting and to a share in the financial benefits of ownership (Bodie, Kane, Marcus). Factors that affect asset class selection are risk tolerance...
Words: 361 - Pages: 2
...Total Plan Risk: Integrating Assets into a Consistent Risk Framework Dan diBartolomeo Northfield Information Services, Inc. FactSet PMW Conference, Atlanta , November 2002 Do We Want to Measure Risk or Manage It? § Measuring risk is an exercise in forecasting § Managing risk requires decision making § Managing risk well requires rational decision making based on an understanding of utility theory What Risks are of Concern to Us? § Asset/liability mismatch risks § Asset class volatility § Style and active management risks How about Multiple Portfolios? § The firm-wide (plan-wide) risk problem w Multiple portfolios with multiple benchmarks w Across countries, across asset classes w Mixture of liquid, and illiquid assets, derivatives w Need to integrate liabilities Approach Number #1 § Build factor risk model for each portfolio separately and aggregate the risks § Arises from the existing stock of models § Advantage is that you are probably using the same models at the portfolio level so you have internal consistency § Problems w Not intuitive, as you can’t add exposures w Lots of factors may lead to covariance matrix which is not positive definite w Use high frequency data or an EM algorithm w Inclusion of liabilities or illiquid assets Approach #2 § Proxy each asset class with indices and then use full covariance. Adapted from trading desk systems § Advantage is simplicity. Works well for asset classes where instruments within the class are homogeneous...
Words: 1390 - Pages: 6
...July 11, 2011 16:4 WSPC/S0219-0249 S0219024911006693 104-IJTAF SPI-J071 International Journal of Theoretical and Applied Finance Vol. 14, No. 4 (2011) 465–484 c World Scientific Publishing Company DOI: 10.1142/S0219024911006693 DO INSTITUTIONAL INVESTORS CARE ABOUT THE AMBIGUITY OF THEIR ASSETS? EVIDENCE FROM PORTFOLIO HOLDINGS IN ALTERNATIVE INVESTMENTS CHRISTIAN KOZIOL∗,‡ , JULIANE PROELSS†,§ and DENIS SCHWEIZER†,¶ ∗University of Hohenheim D-70593 Stuttgart, Germany †WHU — Otto Beisheim School of Management D-56179 Vallendar, Germany ‡c.koziol@uni-hohenheim.de §juliane.proelss@gmx.de ¶denis.schweizer@whu.edu Received 21 October 2009 Accepted 27 October 2010 In this paper, we analyze whether model risk/asset-specific ambiguity is an issue for institutional investors. For this purpose, we first show how model risk (which turns out to be equivalent to special cases of ambiguity) affects optimal portfolio allocation. Using average portfolio holdings for traditional and alternative asset classes of 119 institutional investors, we then calibrate our model to implicitly determine the ambiguity factors of different asset classes. We find that institutional investors are strongly ambiguity-averse, as documented by a Sharpe ratio that is only 60 percent that of an (unambiguous) efficient portfolio. In line with intuition, we document that equity and bond portfolios have a rather low ambiguity, while alternative investments such as real estate, private ...
Words: 9356 - Pages: 38
...1. Yale matches its five core principles of their investment philosophy to their current strategic asset allocation quite well. This is evidenced from below: - • There is a focus on equities with only 4% of 2011 in bonds, with the residual in public or private equity. • Equities are split into 5 fundamentally diverse asset classes, relatively high share of private equity though with share of 33%. • There is an emphasis on less efficient markets with only 20% of 2011 targets in publicly traded equities and bonds, with the remaining in illiquid markets. Even in the public equities space, there is a higher share in less liquid foreign markets than there is in domestic. • Yale also successfully aligned incentives with external managers. 52% of 2011 funds were in private equity / hedge funds perceivably due to strong relationships and financially involved partnerships. Only 4% were in bonds, also being the only self-managed asset class. 2. Value drivers underlying Yale’s investment philosophy can be represented via the following synergetic themes: • Yale focuses on asset classes and markets with the belief of fundamental value creation as opposed to the arbitrage achieved by flipping stocks / securities. This strategy pushed funds into more illiquid assets, and given the higher risk spread between different market players, also inadvertently creating more opportunities for impactful investments. • Yale placed a premium on building long-term relationships with premier external...
Words: 439 - Pages: 2
...1. The goal of finance is to use financial information, tools, and models to search for and implement optimal enterprise solutions that balance expected value and expected risk. We strive to increase expected value and decrease risk, or a combination of the two We get paid to take risk, the more the better, if we do not get paid enough, we take less risk and may even short it Value is the future expected cash flows Risk is the possible deviations from those these cash flows Discounted cash flows is the most common way to measure value and risk, it is the most important tool of finance. * Projected cash flows is our measure of value * The rate we choose to use to discount these cash flows is how we incorporate risk The value creation process: 1. Future expected cash flows 2. Select a rate in which to discount these cash flows that reflect the perceived risks of the cash flows 3. Sum up the cash flows (the intrinsic value of the cash flows) 4. Compare the intrinsic value with their current market price 5. If the intrinsic value is greater, buy, if not, short it or avoid it * Project cash flows that are more reliable and provide useful insights into value * Determine the rate to use and give insights into risk Discount rate: risk free + risk premium Risk free: current yield on treasury security with a maturity comparable to the time horizon of the cash flows you are evaluating Risk premium: the amount we get paid to compensate...
Words: 902 - Pages: 4
...One of the most significant contributions to the investment community has been Markowitz’s modern portfolio theory (MPT) and its foundations in risk return trade-offs and international asset diversification. The growing dependency of Emerging market countries on the US for its stable currency and export sales among other factors has increased their dependence on US markets for their GDP and market growth. This has caused a reduction in the diversification benefits in the Emerging markets. This paper will examine the various empirical evidence on emerging markets diversification and will also construct a portfolio to assess whether investment in these markets still provide benefits. MPT is based on two key principles of investing, namely that an investor will seek to maximise expected return whilst also minimising risk. Its risk is measured by its standard deviations of returns around expected values. By considering “the expected return of each investment in relation to the impact that it has on the risk of the overall portfolio,” (Litterman (2004) p. 12) An investor can prevent weaknesses in one asset class from reducing the portfolio’s overall return. Therefore a portfolio that is invested in a range of industries or asset classes is more diversified against risks that may affect only one asset class. (Crescenzi (2008) p. 141) The implication is that portfolios are constructed with a rate of return equal to the weighted average rate of return of the holdings and yet its risk...
Words: 504 - Pages: 3
...HCS 533 Week 1 Individual Assignment Definition Worksheet (2 Answer) FOR MORE CLASSES VISIT www.hcs533study.com This Tutorial contains 2 Answers for each Question HCS 533 Week 1 Definition Worksheet Definition of Terms The health care environment is constantly changing, new systems arise every day with terminology of their own to reflect the changes. As a health care professional, it is important for you to stay up-to-date with the terminology and its proper use. Define each term in the table below. There’s only one definition for each terminology. -------------------------------------------------------------------- HCS 533 Week 2 Individual Assignment Database Worksheet (2 Set) FOR MORE CLASSES VISIT www.hcs533study.com This Tutorial contains 2 Set of Answers (2 Paper) HCS 533 Week 2 Individual Assignment Database Worksheet Databases Worksheet Write a 50- to 150-word response to the following question. Be clear and concise, use complete sentences, and explain your answers using specific examples. Cite any outside sources. For additional information on how to properly cite your sources, check out the Reference and Citation Generator resource in the Center for Writing Excellence. 1. What is the difference between database types and capacities? 2. How do data inaccuracies affect patient care and reimbursement? 3. Review the databases below and explain the relationship between each of the databases and their impact on the medical records...
Words: 850 - Pages: 4
...person(s) responsible for implementing a fund's investing strategy and managing its portfolio trading activities. A fund can be managed by one person, by two people as co-managers and by a team of three or more people. Fund managers are paid a fee for their work, which is a percentage of the fund's average assets under management. 2. How can a common man benefit from the Mutual Fund investment? Ans: Mutual fund investment gives common man opportunity to invest in different class of assets. It also includes investing in money market funds, bond or fixed income funds, stock or equity funds and hybrid funds. It gives diversified portfolio where different asset classes have different level of risk where risk can be covered. As it is managed by professional common man just have to invest. It gives high returns as compare to investing in only one asset class. Thus, instead of investing in particular money market or bond market investment mutual fund is better option to enjoy investment in different assets class and higher returns. 3. Which are the different Asset Classes Mutual Funds can invest into? Ans.: An investor can invest into the following three types of Asset Classes. i) Equity Funds Funds that invest in stocks represent the largest category of mutual funds. Generally, the investment objective of this class of funds is long-term capital growth with some income. There are, however, many different types of equity funds because there are many...
Words: 1544 - Pages: 7
...BUS 591 Entire Course For more classes visit www.indigohelp.com BUS 591 Week 1 DQ 1 Generally Accepted Accounting Principles (G.A.A.P.). BUS 591 Week 1 DQ 2 Annual Reports BUS 591 Week 1 Homework Problems BUS 591 Week 2 DQ 1 Debits and Credits BUS 591 Week 2 DQ 2 Revenue & Expense BUS 591 Week 2 Homework Problems BUS 591 Week 3 DQ 1 Perpetual Inventory System BUS 591 Week 3 DQ 2 Inventory Valuation Methods BUS 591 Week 3 Homework Problems BUS 591 Week 4 DQ 1 Why do I need accounting BUS 591 Week 4 DQ 2 Sarbanes-Oxley Act of 2002 ............................................................................................................................ BUS 591 Week 1 DQ 2 Annual Reports For more classes visit www.indigohelp.com Annual Reports. Visit the website for Tootsie Roll (www.tootsie.com). Click on “Company Information” then “Financial Information”. Open the latest annual report and review it to find the answers to the following questions: § What are Tootsie Roll’s corporate principles? Do you agree with these principles, or do you feel there are additional principles that should be included? What was the total amount of Tootsie Roll’s assets for the most current year available? § What was the total amount of Tootsie Roll’s liabilities for the most current year available? § What is the amount of the difference between Tootsie Roll’s assets and liabilities? What is this difference...
Words: 648 - Pages: 3
