There is a foundational crisis in modern finance theory and practice. There is little credible evidence that active investment strategies provide superior risk-adjusted, cost-adjusted return over investment relevant horizons. Investors are increasingly voting with their feet and adopting minimal-cost no-information index or rule-based factor funds. Why is professional investment management unreliably cost-effective for meeting long-term investor goals? What risks exist for investors who adopt minimal cost no-information investment strategies?
The seminar argues that modern finance theory has been in error for more than fifty-five years and institutional quantitative technology inappropriate for investment practice. The misdirections of theory and practice are not the consequence of simple blunders but of a fundamental misunderstanding of the nature of human rational decision making and the existence of a critical mismatch between the precision of computational algorithms and the nature of investment information. Proposals for resolution include applications of late 20th century innovations in statistical estimation procedures and theories of investor behavior consistent with early pioneers in finance and 21st century developments in social group dynamics and modeling.
The seminar has five sessions:
Each participant will receive a complimentary copy of Efficient Asset Management: A Practical Guide to Stock Portfolio Optimization and Asset Allocation (Harvard 1998, 2nd ed. Oxford 2008).
CFA Society Members will receive five Continuing Education credits for attending. Please contact Pauline Hickey with any questions.
Dr. Richard Michaud
President & Chief Executive Officer, New Frontier
Dr. Richard Michaud is President and Chief Executive Officer of New Frontier. He earned a PhD in Mathematics from Boston University and has taught investment management at Columbia University. His research and consulting has focused on asset allocation, investment strategies, global investment management, optimization, stock valuation, and trading costs. He is the author of Efficient Asset Management (Harvard 1998, 2nd ed. Oxford 2008 with Robert Michaud), Investment Styles, Market Anomalies, and Global Stock Selection (CFA Research Monograph 1999), and over 60 published journal articles, manuscripts, and white papers available at SSRN.com and Researchgate.com, as well as on the New Frontier website. He is co-holder of four U.S. patents in portfolio optimization and asset management, a Graham and Dodd Scroll winner for his work on optimization, a former editorial board member of the Financial Analysts Journal, associate editor of the Journal Of Investment Management, and former director of the Q Group. Dr. Michaud's research was recently profiled in the WatersTechnology cover story "Rebel Math" (January 2019). Notable press articles also include "Modern Portfolio Theory’s Evolutionary Road" (Institutional Investor 2010) and “Markowitz says Michaud has built a better mousetrap” (Pensions & Investments 2003).