Next Boston QWAFAFEW Meeting: Tuesday, 18 Oct 2016
Time: 6:15 PM sharpe
3rd Floor of the Tennis & Racquet Club, 939 Boylston Street
RSVP to hugh@QWAFAFEW.org
The “Fundamental Law of Active Management” Is No Law of Anything
A QWAFAFEW discussion arranged by Steve Gaudette and led by:
Richard O. Michaud
David N. Esch
Robert O. Michaud
Roughly half of all professionally managed funds globally employ optimized portfolio design principles that are applications of Grinold’s “Fundamental Law of Active Management.” These include: Invest in many securities, use many factors to forecast return, trade frequently, and optimize with minimal constraints. We show with simple examples followed by rigorous simulation proofs that these proposals are invalid and self-defeating. This is because estimation error and required economically valid constraints are ignored in derivations. These flawed principles have been unchallenged by academics and practitioners for nearly twenty-five years and may adversely impact a trillion dollars or more in current fund management.
Dr. Richard Michaud is President and CEO of New Frontier Advisors, LLC. He earned a PhD in Mathematics from Boston University and has taught investment management at Columbia University. He is the author of Efficient Asset Management (Harvard 1998, 2nd ed. Oxford 2008 with Robert Michaud), a CFA Research Monograph (1999) on Global Asset Management, and numerous academic and research articles available on www.ssrn.com and www.researchgate.com. 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. David Esch is currently Managing Director of Research at New Frontier Advisors, having joined the firm in 2008. He completed his PhD in Statistics at Harvard University in 2004. His specialties include mathematical statistics, numerical analysis and computation, Bayesian statistics and econometrics. He is author of the article “Non Normality Facts and Fallacies,” (Journal of Investment Management 1st Quarter 2010), selected as one of the best JOIM papers of 2010, and co-author on many other peer-reviewed journal articles. A native of Boston, his educational background also includes a Bachelor of Arts degree from Harvard College and a Master degree in Mathematics and Statistics from Boston University
Robert Michaud is the co-holder of four U.S. patents in portfolio optimization and asset management, and is the Chief Investment Officer at New Frontier. He holds a Masters in Mathematics from Boston University and pursued a Ph.D. in finance from the Anderson School of Management at the University of California, Los Angeles before joining New Frontier. His research interests include asset allocation, portfolio theory, risk models, empirical asset pricing, and international finance. He is co-author of Efficient Asset Management: A Practical Guide to Stock Portfolio Optimization and Asset Allocation, 2nd ed. (Oxford University Press, 2008) and research articles in refereed journals
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Executive Management Associates
12 Academy Avenue
Atkinson, NH 03811
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Guests who do not RSVP may have to wait to enter the meeting, due to space constraints (capacity=100, BFD).
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As always, if you have names or discussion topics, please forward them to any member of the Steerage Committee
Hugh Crowther (Treasurer)
Donna Cool Murphy (Dinners)
The members of the Steerage Committee are responsible for coordinating the program content.
Program suggestions from members are always welcome.
RSVP to: hugh@QWAFAFEW.org