Traditional Portfolio Research Articles

ECLIPPx: an innovative model for reflective portfolios in life-long learning

For healthcare professionals, the educational portfolio is the most widely used component of lifelong learning - a vital aspect of modern medical practice. When used effectively, portfolios provide evidence of continuous learning and promote reflective practice. But traditional portfolio models are in danger of becoming outmoded, in the face of changing expectations of healthcare provider competences today. Portfolios in health care have generally focused on competencies in clinical skills. However, many other domains of professional development, such as professionalism and leadership skills, are increasingly important for doctors and health care professionals, and must be addressed in amassing evidence for training and revalidation. There is a need for modern health care learning portfolios to reflect this sea change. A new model for categorising the health care portfolios of professionals is proposed. The ECLIPPx model is based on personal practice, and divides the evidence of ongoing professional learning into four categories: educational development; clinical practice; leadership, innovation and professionalism; and personal experience. The ECLIPPx model offers a new approach for personal reflection and longitudinal learning, one that gives flexibility to the user whilst simultaneously encompassing the many relatively new areas of competence and expertise that are now required of a modern doctor.

Mean-Variance-Skewness-Entropy Measures: A Multi-Objective Approach for Portfolio Selection

In this study, we present a multi-objective approach based on a mean-variance-skewness-entropy portfolio selection model (MVSEM). In this approach, an entropy measure is added to the mean-variance-skewness model (MVSM) to generate a well‑diversified portfolio. Through a variety of empirical data sets, we evaluate the performance of the MVSEM in terms of several portfolio performance measures. The obtained results show that the MVSEM performs well out-of sample relative to traditional portfolio selection models.

Multimedia technologies and ICT in organising e-portfolio for students

An electronic portfolio, also known as an e-portfolio or digital portfolio, is a collection of electronic evidence assembled and managed by a user, usually on the Web. Such electronic evidence may include inputted text, electronic files such as Microsoft Word and Adobe PDF files, images, multimedia, Blog entries, and hyperlinks.One of the approaches, which can be used for improving the attractiveness of the e-portfolio is presented, and it is an implementation of the multimedia technologies in it. In this case we are speaking about multimedia electronic portfolio. What makes them very different from the traditional portfolios is that they can include scanned or digital photos, video and sound clips, animations, recordings of the students, text, traditional writings and drawings.Two main groups of tools (Non Web Authoring Tools and Web Authoring Tools) for creating multimedia e-portfolio are presented.

Optimal Portfolios with Traditional and Alternative Investments: An Empirical Investigation

This article empirically investigates the diversification effects on a traditional portfolio by introducing alternative investments (hedge funds, managed futures, real estate, private equities, and commodities). The authors analyze two portfolios: the one with the lowest risk (Minimum Risk Portfolio, or MRP) and the one with the highest (modified) Sharpe Ratio (Maximum Relative Performance Portfolio, or MRPP) for the period April 1999 to April 2009. This article is the first attempt to incorporate a variety of risk measures (Volatility, Value at Risk, and Conditional Value at Risk) as the objective function for portfolio optimization and for different estimates for the expected return (historical estimates, robust Bayes-Stein estimates, Capital Asset Pricing Model (CAPM) estimates, and Black-Litterman estimates). Furthermore, the alternative risk measures are additionally modified for the skewness and the kurtosis: modified VaR and modified CVaR. The influences of the higher moments on asset allocation are also examined in connection with different risk measures and various estimators for expected returns. <b>TOPICS:</b>Real assets/alternative investments/private equity, portfolio construction, VAR and use of alternative risk measures of trading risk, statistical methods

The Impact of Alternative Investments on Private Colleges' Endowment Investment Returns

Over the past twenty years, colleges have invested an increasing share of their endowment assets in “alternative investments.” Prior to 2009, an alternatives emphasis had been widely credited for the sterling endowment investment returns earned by many colleges. However, with college endowments generally suffering sharply negative investment returns during fiscal year 2009, many commentaries have more recently questioned the desirability of this increasing alternatives allocation. This paper addresses several key questions that are central to the current debate on the appropriate role for alternative investments in colleges’ endowment portfolios.Going beyond anecdotal accounts, the evidence confirms that an increased emphasis on alternatives did tend, ceteris paribus, to reduce private colleges’ investment returns in 2009. However, the extent of the impact on 2009 investment returns is perhaps smaller than has been commonly understood. Further, when one looks at the evidence for the ten-year period ending in 2009, an increased emphasis on alternatives tends, ceteris paribus, to significantly increase a college’s cumulative investment return. Despite concerns about the ability of colleges with smaller endowments to successfully invest in alternatives, the positive impact on investment returns over the decade of an increased alternatives allocation holds for colleges in all endowment size groups -- though the positive impact does tend to be smallest at colleges with the smallest endowments.One year’s returns do not tell the whole story, and even one decade’s returns are limited in the perspective they provide. The decade from 1999 to 2009 may have been an unusually strong one for alternatives relative to the returns earned in a more traditional portfolio emphasizing U.S. equities and fixed income securities. Yet, as argued in David Swensen’s Pioneering Portfolio Management, there is a reasonable conceptual basis for a move towards alternatives, especially among colleges with the needed expertise. For now, the actual cumulative record through 2009 of private colleges’ investments in alternatives supports a significant role for alternatives.

A Style-Based Market Risk Model for Hedge Fund Portfolios

In this article, the authors develop a market risk model for hedge fund portfolios by integrating cluster analysis, extreme value theory (EVT), and copula modeling. Because the cluster model is exclusively based on fund returns, cluster classifications are more objective than self-reported styles. The EVT contribution considers the fat-tailed distribution of hedge fund returns, implicitly accounting for jump risk. The copula method accounts for the dependence between clusters. Two Gumbel copulas are constructed—one on the average returns of funds in the clusters, and the other on returns of all funds in the clusters. The first copula is directly applicable to a highly diversified portfolio and the authors show how to apply this copula to a general hedge fund portfolio. The second copula is suitable for simulations on nondiversified portfolios and also provides a tool for stress tests. Monte Carlo simulations indicate that investing in a broadly diversified hedge fund portfolio is not riskier than investing in a traditional diversified portfolio.

Sources of Return within an Emerging Markets Fixed-Income and Foreign Exchange Portfolio

Over the past decade, emerging market investments have increasingly become the focus of investor interest.Numerous academic and practitioner studies have emphasized the potential for excess return and risk reduction when adding emerging market investments to a traditional portfolio. Much of the research, however, has focused on empirical analyses rather than on highlighting the long-term structural arguments for emerging market investments. Moreover, much of the research has tended to focus on the equity markets rather than on other forms of emerging market investment, such as fixed income and foreign exchange (FX).This practitioner note introduces the reader to the non-equities emerging market (EM) investment universe,describes a prototypical EMfixed-income/FX portfolio, and quantitatively works out the expected annualized returns on such a portfolio, distinguishing between beta and alpha as the sources of returns. <b>TOPICS:</b>Fixed income and structured finance, currency, emerging, performance measurement

Quantifying the risk of an increase in the prices of non-energy products by combining the portfolio and input–output approaches

An increase in the price of imported fossil fuels indirectly increases the producer price in non-energy sectors; however, this indirect influence cannot be taken into account by the traditional portfolio approach. This study proposes an analytical framework combining the input–output (I–O) model and the portfolio approach that can take the indirect influence into account. A risk of an increase in the producer price in Japanese non-energy sectors during the period 1970–2000 is estimated, and the causes of a decrease in the risk through the analysis period are clarified by decomposing an index of the risk. The result indicates that almost all non-energy sectors have decreased this risk during the analysis period. The degree and cause of the decrease depends on a sector’s location in the hierarchical structure of Japanese industries. For example, assembly sectors have decreased their risk mainly as the result of improvement in energy usage by upstream sectors, such as material sectors, rather than their own improvements. Proper policies considering such a structure are required to decrease the risk further because the effort taken to do so is seldom motivated by economic profit.

The Benefits of International Portfolio Diversification

Diversification is one of the main pillars of finance theory. However, its benefits for a conservative investor have been put in check recently with the financial crisis whether it really adds value to the investment profile. The objective of this study is to evaluate if the inclusion of new asset classes add value to a traditional conservative portfolio of USD and EUR bonds. To reach this goal we take into account several asset classes from equities to commodities and generate what would be the efficient frontier under both the Markowitz and the resampling approaches. We also evaluate the effect of the chosen numeraire in the analysis. Our results indicate that the benefits of diversification are higher for less risk averse investors and the choice of the numeraire has a dramatic effect in the portfolio optimization problem and so this is one of the main decisions the investor should care about.

E-portfolio and Narrative Organization

This poster identifies core issues that learning designers need to consider when they plan to utilize an e-portfolio for learning purposes. These issues include questions as why should one use an e-portfolio? Another important question is of course what an e-portfolio is in the first place? Yet another question to be dealt with goes to how an e-portfolio is used? The poster starts by reviewing specific learning and sociological theories to identify two main reasons for using e-portfolios in today's educational institutions. Firstly, the e-portfolio is a tool for collecting learning products across classes, courses and programs and a tool for reflection with the aim to construct a meaningful whole out of all the smaller pieces of learning and/or learning products. Secondly, society needs the educational institutions to prepare students to construct a meaningful life in a world that's often experienced to be chaotic whether we regard it postmodern or not. The poster introduces theory beyond the traditional portfolio theory, that is theory on technology and media, to help bridging the theoretical gap between traditional paper based portfolios and e-portfolios based on interactive flexible hypermedia. The poster thus researches e-portfolios from one specific perspective: The student is seen as the architect and creator of his own portfolio and a narrator of his own learning and identity since the poster suggests that the structuring and re-structuring of an e-portfolio may be interpreted as creation of a narrative by the student.

Exact properties of measures of optimal investment for benchmarked portfolios

We revisit the problem of calculating the exact distribution of optimal investments in a mean variance world under multivariate normality. The context we consider is where problems in optimisation are addressed through the use of Monte-Carlo simulation. Our findings give clear insight as to when Monte-Carlo simulation will, and will not work. Whilst a number of authors have considered aspects of this exact problem before, we extend the problem by considering the problem of an investor who wishes to maximise quadratic utility defined in terms of alpha and tracking errors. The results derived allow some exact and numerical analysis. Furthermore, they allow us to also derive results for the more traditional non-benchmarked portfolio problem.

Commodity trading advisors (CTAs) for the Indian commodity market

PurposeThe Indian commodity market requires large investments and enhanced trading activity both in the national as well as the regional commodity markets. The participation of non‐professional people trading commodity markets makes the market a risky venture. Non‐professional participants simply add to the volatility factor of the market. There is a dire need for professional experts who are able to provide advice on commodity trading and build commodity inclusive portfolios. Such professional awareness, expertise, and guidance in commodity trading can come from professional commodity traders called commodity trading advisors (CTAs). The purpose of this paper is to offer arguments and insights as to why the Indian commodity market needs the participation of the CTAs. The money brought in by CTA advised clients will add to the depth, liquidity, and trade which in turn will make commodity prices more efficient. As a regulatory measure, the Indian market too can adopt guidelines structured for CTAs by Commodity Future Trading Commission and National Futures Association. The CTAs can bring the Indian commodity market at par with developed commodity markets like Chicago Board of Trade.Design/methodology/approachThe paper reviews and discusses the various issues related to CTAs applicability in India. The goal of the paper is to outline the need for allowing CTAs activity in Indian commodity market and discuses the key operational and policy considerations in developing the commodity market for CTAs in India.FindingsThe recent expansion of Indian commodity market has not been very structured. The market has expanded with the expansion in demand for commodities both in spot and derivative market. There have been constraints through policy restrictions and at the same time there has been an effort for liberalization of the commodity market to bring them at par with international commodity market. Of late, the Indian equity market has been very volatile. Participation of CTAs will provide much required downside protection to traditional portfolios and they will also provide the expertise in commodity derivative trading to participants and help build the commodity inclusive portfolios with better return and lesser risk.Originality/valueThis is the first paper that initiates thoughts on allowing CTAs to participate in the Indian commodity market. The paper builds on the concept that CTAs would add the desired price discovery, volume, and depth to the Indian commodity market. The Indian commodity market, despite being quite old, has recently broken free from the restrictive policies and has ushered into an era of initiates supporting commodity derivative market development. To the best of the authors' knowledge, there exists no literature on CTAs participation in India.

An analysis of risk-based asset allocation and portfolio insurance strategies

This paper compares traditional portfolio insurance strategies with modern risk-based dynamic asset allocation strategies within a currency portfolio context for reserve management. Given the objective of preserving reserve value, the evaluation of the hedging performances of various strategies focuses on four perspectives regarding, in particular, the return distribution of the hedged portfolio. In terms of the Sharpe Ratio, the constant proportional portfolio insurance is the best performer due to having the lowest volatility, while the Value at Risk strategy based upon the normal distribution is the worst due to its having the smallest return. From the perspective that the return distribution of the hedged portfolio is shifted to the right, the synthetic put performs the best, with the expected shortfall strategy the second best. In terms of the cumulative portfolio return across years, the expected shortfall strategy using the historical distribution ranks first, as a result of its participation in upward markets. Furthermore, the expected shortfall-based strategy results in a lower turnover within the investment horizon, thereby saving transaction costs.

Comparison and robustification of Bayes and Black-Litterman models

For determining an optimal portfolio allocation, parameters representing the underlying market—characterized by expected asset returns and the covariance matrix—are needed. Traditionally, these point estimates for the parameters are obtained from historical data samples, but as experts often have strong opinions about (some of) these values, approaches to combine sample information and experts’ views are sought for. The focus of this paper is on the two most popular of these frameworks—the Black-Litterman model and the Bayes approach. We will prove that—from the point of traditional portfolio optimization—the Black-Litterman is just a special case of the Bayes approach. In contrast to this, we will show that the extensions of both models to the robust portfolio framework yield two rather different robustified optimization problems.

The Changing Benefit of REITs to the Mixed-Asset Portfolio

Executive Summary. A number of studies have examined the allocation of public real estate securities (REITs) in the mixed-asset portfolio. Yet no study has explicitly examined what benefits REITs offer to the traditional capital market mixed-asset portfolio (i.e., whether REITs are a return enhancer, diversifier, or both). This paper examines this issue using the method suggested by Liang and McIntosh (1999), which decomposes the overall risk-adjusted benefits of an investment to an existing portfolio into its diversification benefits and return benefits. The results show that REITs offer different benefits to different asset classes and the mixedasset portfolio and that these benefits have changed over time. Thus, whether REITs can have a place in any future mixed-asset portfolio largely depends on the relative return performance of REITs versus the alternative asset classes within the mixed-asset portfolio.

Portfolio Risk Management with CVaR-Like Constraints

A current research stream in the portfolio allocation literature develops models that take into account the asymmetric nature of asset return distributions. Our paper contributes to this research stream by extending the Krokhmal, Palmquist, and Uryasev approach. We add CVaR-like constraints in the traditional portfolio optimization problem to reshape the tails of the portfolio return distribution while not significantly affecting its mean and variance. We illustrate how to apply this approach, called the “MV + CVaR approach,” to manage tail risk of an insurer’s asset-liability portfolio. Finally, we compare the MV + CVaR approach with the traditional Markowitz method and a method recently introduced by Boyle and Ding. Our numerical analysis provides empirical support for the effectiveness of the MV + CVaR approach in controlling downside risk. Moreover, we find that the MV + CVaR approach may improve skewness of mean-variance portfolios, especially for high-variance portfolios.

Estimation Risk Modeling in Optimal Portfolio Selection: An Empirical Study from Emerging Markets

Efficient portfolio is a portfolio that yields maximum expected return given a level of risk or has a minimum level of risk given a level of expected return. However, the optimal portfolios do not seem to be as efficient as intended. Especially during financial crisis period, optimal portfolio is not an optimal investment as it does not yield maximum return given a specific level of risk, and vice versa. One possible explanation for an unimpressive performance of the seemingly efficient portfolio is incorrectness in parameter estimates called “estimation risk in parameter estimates”. Six different estimating strategies are employed to explore ex‐post‐portfolio performance when estimation risk is incorporated. These strategies are traditional Mean‐Variance (EV), Adjusted Beta (AB) approach, Resampled Efficient Frontier (REF), Capital Asset Pricing Model (CAPM), Single Index Model (SIM), and Single Index Model incorporating shrinkage Bayesian factor namely, Bayesian Single Index Model (BSIM). Among the six alternative strategies, shrinkage estimators incorporating the single index model outperform other traditional portfolio selection strategies. Allowing for asset mispricing and applying Bayesian shrinkage adjusted factor to each asset′s alpha, a single factor namely, excess market return is adequate in alleviating estimation uncertainty.

An Analysis of Portfolio Selection with Background Risk

This paper investigates the impacts of background risk on an investor’s portfolio choice in a mean-variance framework, and analyzes the properties of efficient portfolios as well as the investor’s hedging behaviour in the presence of background risk. Our model implies that the efficient portfolio with background risk can be separated into two independent components: the traditional mean-variance efficient portfolio, and a self-financing component constructed to hedge against background risk. Our analysis also shows that the presence of background risk shifts the efficient frontier of financial assets to the right with no changes in its shape. Moreover, both the composition of the hedge portfolio and the location of the efficient frontier are greatly affected by a number of background risk factors, including the proportion of background assets in total wealth, the variability of background asset returns, and the correlation between background risk and financial risk.

Strategic Asset Allocation: Determining the Optimal Portfolio with Ten Asset Classes

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.

Applying a Global Optimisation Algorithm to Fund of Hedge Funds Portfolio Optimisation

Portfolio optimisation for a Fund of Hedge Funds (?FoHF?) has to address the asymmetric, non-Gaussian nature of the underlying returns distributions. Furthermore, the objective functions and constraints are not necessarily convex or even smooth. Therefore traditional portfolio optimisation methods such as mean-variance optimisation are not appropriate for such problems and global search optimisation algorithms could serve better to address such problems. Also, in implementing such an approach the goal is to incorporate information as to the future expected outcomes to determine the optimised portfolio rather than optimise a portfolio on historic performance. In this paper, we consider the suitability of global search optimisation algorithms applied to FoHF portfolios, and using one of these algorithms to construct an optimal portfolio of investable hedge fund indices given forecast views of the future and our confidence in such views.