Risk adjustment as an excuse
Risk adjustment is a fundamental element of modern portfolio theory. Alpha is defined as the return left over after the impact of all sources of risk, including strategic biases, has been accounted for (see the examples in my series on alpha). But a positive historical alpha alone is not sufficient to conclude that a particular […]
Alpha in tactical asset allocation
It is easy to beat the benchmark of a balanced portfolio in the long run. All we have to do is systematically overweight the riskier asset classes to capture their higher risk premiums. This may add some volatility but will almost certainly lead to a better long-term performance. Many years ago, I suggested this approach […]