# Tag Info

Accepted

### Why is Markowitz portfolio optimisation so popular considering it is worse than an equal weighted portfolio?

Markowitz's concepts attracted a great deal of interest from theorists (and still do), but never had much application in practice. The results from practical application were always disappointing (...
• 9,597
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### Equivalent to Matlab's financial toolbox in python?

I took a quick look at Matlab's Financial Toolbox and attempted to map the features to corresponding Python packages – For asset allocation, portfolio optimization, and risk analytics: Standard ...
• 10.9k
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### Calculating alpha and its meaning

Alphas from a time-series regression are error terms in the cross-sectional, linear relationship between expected returns and factor betas. If a factor model were correct those error terms (the alphas)...
• 6,354
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### What does the concept "standard Markowitz approach" include?

The Markowitz mean-variance model is the basis for many extensions and portfolio solutions that have been discovered over the years: The standard model (Markowitz, 1952, 1959) originally only ...
• 2,835

### Why is Markowitz portfolio optimisation so popular considering it is worse than an equal weighted portfolio?

There has been a split in the community ever since Mandelbrot published his paper "On the Variation of Certain Speculative Prices." See: Mandelbrot, B. (1963). The variation of certain speculative ...
• 4,105

### Why is Markowitz portfolio optimisation so popular considering it is worse than an equal weighted portfolio?

It is more complicated than that: It is not the optimization per se that leads to inferior results but the data you use. Kritzman et al. makes a strong case in defense of optimization vs. 1/N in this ...
• 27k

### How to construct a Risk-Parity portfolio?

I am very happy with the following equivalent formulation for the risk budgeting problem (as presented in Bruder, Roncalli, 2012, Managing Risk Exposures using the Risk Budgeting Apporach): Let $b_i$,...
• 2,894
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### utility function and CAPM in portfolio theory

Please have a look at this image, which I have copied from here: Here, the point M is the tangency portfolio of the capital market line. As you can see, the investor A (left hand side) can attain ...
• 5,853

### What's the point of resampling?

The "estimation problem" in Portfolio Optimization is a serious one. The parameters (returns and covariances) are known very imprecisely. For example the covariance between stocks and bonds ...
• 9,597

### What is smart beta, alternative index, factor investing?

In recent years there has been much attention given to defining indexes other than market-cap based indices. While market-cap based indices approximate the theoretical Market Portfolio enshrined in ...
• 9,597
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• 5,853

### Find k of n assets that "minimize" the correlation matrix

(I take it that 5 out of 10 assets is just an example, because in this case all combinations could easily be checked.) Here would be an example how to do it in R ...
• 2,946
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### What is the proper capital split/allocation between the long and short in a pairs trade?

There are many different approaches to creating a portfolio comprising long-short pairs trades. Many take the approach of market neutrality. They attempt to create a portfolio that is insensitive to ...
• 5,325
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### Simulating returns from ARMA(1,0)-GARCH(1,1) model

This question has already been answered on Stack Overflow. As it is important to Quant Finance, so I have added R code here. Others users may add code of other programming software to simulate ARMA(...

### High values of skewness and kurtosis of realized protfolio returns

The skewness and kurtosis values you obtain appear to be of realistic magnitude. In general higher frequencies are more non-normal, i.e. have higher skewness and kurtosis. If non-normal returns are ...
• 392
Accepted

### Asset Liability Management Test Topic Interpretation

Portfolios for some kind of investors effectively balance asset investments with liabilities incurred. Think about a pension account, where the future liability of the pension payment represents the ...
• 450

### Multi-asset class allocation

In this case it is important to differentiate between a liability-driven investment strategy (LDI) and a (the classical) benchmark-driven investment strategy. The first one is what you need in this ...
• 27k