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• NFA is unique:• Institutional investors who use our own software• Global software providers who manage money• Published authors in books and refereed journals• Four U.S. patents, two pending
Shanken (1985), Jobson and Korkie (1985), Levy and Roll (2010) Tests of CAPM Is “market” statistically mean-variance (MV) efficient
Limitations of academic tests Analytical tests assume unconstrained MV optimization Hotellings T2 and other analytic methods Not useful for investment practice
Practice requires linear inequality constraints Constraints part of defining test statistic See Markowitz (2005) why constraints essential
Information in current portfolio often based on similar information in new optimal
Common information means two portfolios similar all things equal Need-to-trade probability necessarily small Test is no-trading-biased in presence of common information
Michaud-Esch-Michaud conditional monitoring rule A new scale that includes common information Dramatically enhanced power for many practical applications Realistically sensitive to changes in current vs. optimal Three levels of resampling in general case
X0= [x1,x2,…,x60] = defines original risk-return distribution
New optimal portfolio P* Xnew = [x13,x2,…,x72] = defines new risk-return distribution 48 months of common information: [x13,x2,…,x60]
Compute meta-resampled portfolios (simplest case) Compute k = random draws = 12 from Xnew distribution Add to common 48 months: [x13,x2,…,x60] = sim distribution Compute meta-sim optimal and distance to P* Repeat above many times Sort and define distance distribution Compute P0 distance to optimal and percentile in distance
distribution (conditional need-to-trade probability C(k))
President, Chief Investment Officer Co-inventor (with Robert Michaud) of Michaud Resampled
Efficient Frontier™, three other patents, two pending Author: Efficient Asset Management, 1998. Oxford
University Press, 2001, 2nd Edition 2008 (with Robert Michaud)
Many academic and practitioner refereed journal articles CFA Institute monograph on global asset management. Prior positions include:
Acadian Asset Management; Merrill Lynch Graham and Dodd winner for work on optimization Former Director and research director of the “Q” Group Advisory Board member, Journal Of Investment
Management Former Editorial Board member Financial Analysts