CAPM came under a lot of scrutiny and attack as its simplicity also led to extensive testing which did not bear out the conclusions. This paper seeks to re-think CAPM in light of the broader trend in the institutional world to implement Liability Driven Investments (LDI) to see if this can help...

There is an annuity puzzle in that the actual allocation by individuals to annuities is low. Longevity bonds, to hedge overall economy-wide mortality risk, have been proposed, but these bonds have challenges and the proponents have not shown how governments are hedged. This paper recommends that...

The Capital Asset Pricing Model (CAPM) has been the backbone of asset market finance even though many academic studies have revealed its limitations, both theoretical and empirical. This paper argues that including liability or benchmark considerations in investment decisions may provide a...

Investors live in a multi-period, volatile world and base their decisions on theories of asset pricing, and asset allocation, often derived from a single period model. They make assumptions about asset returns and volatilities and use optimizers to set their long term allocations, and often...

Kahneman-Tversky's (KT) seminal paper on Prospect Theory (PT) found that individuals placed value on changes in wealth. Individuals appeared to display different reactions to gains and losses and, displayed loss aversion, which depended on the distance from a “critical value”. These two...

There has been a rapid growth in retail investing with assets increasingly going into robo-advisors and target date funds. One of the appealing aspects of these platforms and products is that they delegate all investment decisions to the asset manager (who is believed to be more sophisticated)...

Using case studies of two investment companies, this paper highlights that organizations may have “investment tribes,” i.e., groups of individuals who appear to exhibit similar risk tendencies for gambles involving gains or losses, possibly with a wide spread of risk preferences. Tribes and...

Since the development of modern portfolio theory (MPT) in the late 1950s and early 1960s, academics have offered numerous competing theories. MPT's simplicity is appealing: The expected return on an asset is simply a function of the return of the market portfolio and the asset's beta to the...

This paper makes a simple but bold argument that because mean-variance optimization (MVO) and the capital asset pricing model (CAPM) were derived from a theoretical construct rather than reality, they represent a specialized case of a more general theory. We suggest a theory based on the...