DEVELOPING PRACTICAL INVESTMENT RESILIENCE A QWAFAFEW discussion led by,
Jarrod Wilcox, PhD
While seeking practical tools for resilient investors, a myopic ability for single-period decisions to reflect outcomes at multiple time horizons without dynamic programming is developed. It captures tail risk, and, with multiple overlapping observations compounded at different frequencies, captures time-series properties as well. These benefits rely on pairing multi-level representation of utility probability distribution with the use of Rubinstein utility, logarithmic in investor surplus. Other tools demonstrated for practical use include top-down hierarchical cluster analysis to provide qualitative information, simplified shrinkage of observed return means, but not covariances or higher moments, and better measures of potential tail risk. Resulting asset allocation examples drawn from 28 mutual funds and ETFs vary by investor risk aversion, by degree of anticipation of different regime, and by whether they consider short, longer, or multiple time horizons. For single-horizon problems, the resilient methods appear most helpful to conservative investors or to those who trade infrequently. In contrast, multiple time horizons appear potentially helpful to all investors.
Down load here:
Jarrod Wilcox is President of Wealthmate, Inc., developing open-source software. Prior to his retirement as an active investment advisor through Wilcox Investment, Inc in 2019, he served in a variety of investment roles at Batterymarch Financial Management, Colonial Management Associates, and Panagora Asset Management. Before that, he was a management consultant with the Boston Consulting Group and earlier a member of the faculty at MIT’s Sloan School of Management. His most recent articles deal with asset allocation systems and discretionary wealth financial planning. He is a CFA and was educated at the Massachusetts Institute of Technology, with S.B., M.S. and Ph.D. degrees in Management.
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