Postmodern Portfolio Theory
Navigating Abnormal Markets and Investor Behavior
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Beschreibung
This survey of portfolio theory, from its modern origins through more sophisticated, “postmodern” incarnations, evaluates portfolio risk according to the first four moments of any statistical distribution: mean, variance, skewness, and excess kurtosis. In pursuit of financial models that more accurately describe abnormal markets and investor psychology, this book bifurcates beta on either side of mean returns. It then evaluates this traditional risk measure according to its relative volatility and correlation components. After specifying a four-moment capital asset pricing model, this book devotes special attention to measures of market risk in global banking regulation. Despite the deficiencies of modern portfolio theory, contemporary finance continues to rest on mean-variance optimization and the two-moment capital asset pricing model. The term postmodern portfolio theory captures many of the advances in financial learning since the original articulation of modern portfolio theory. A comprehensive approach to financial risk management must address all aspects of portfolio theory, from the beautiful symmetries of modern portfolio theory to the disturbing behavioral insights and the vastly expanded mathematical arsenal of the postmodern critique. Mastery of postmodern portfolio theory’s quantitative tools and behavioral insights holds the key to the efficient frontier of risk management.
This survey of portfolio theory, from its modern origins through more sophisticated, “postmodern” incarnations, evaluates portfolio risk according to the first four moments of any statistical distribution: mean, variance, skewness, and excess kurtosis. In pursuit of financial models that more accurately describe abnormal markets and investor psychology, this book bifurcates beta on either side of mean returns. It then evaluates this traditional risk measure according to its relative volatility and correlation components. After specifying a four-moment capital asset pricing model, this book devotes special attention to measures of market risk in global banking regulation. Despite the deficiencies of modern portfolio theory, contemporary finance continues to rest on mean-variance optimization and the two-moment capital asset pricing model. The term postmodern portfolio theory captures many of the advances in financial learning since the original articulation ofmodern portfolio theory. A comprehensive approach to financial risk management must address all aspects of portfolio theory, from the beautiful symmetries of modern portfolio theory to the disturbing behavioral insights and the vastly expanded mathematical arsenal of the postmodern critique. Mastery of postmodern portfolio theory’s quantitative tools and behavioral insights holds the key to the efficient frontier of risk management.
Autor*in
James Ming Chen
Themen in »Postmodern Portfolio Theory«
mathematical finance asset pricing CAPM skewness behavioral economics risk aversion risk seeking behavioral portfolio theory SP/A theory equity premium puzzle Basel accords correlation volatility
Stimmen zu »Postmodern Portfolio Theory«
“Chen’s work offers an unparalleled view of portfolio theory and its subtleties from one of America’s leading experts in the field. A must read.” (Chris Brummer, Professor and Director, Institute of International Economic Law, Georgetown University Law Center, USA)
“Chen offers fascinating insight into the fundamentals of corporate finance and behavioral economics. His arguments are rooted in a deep understanding of these fields and showcase a commanding ability to re-conceptualize long-held theories and assumptions in corporate finance through the lens of behavioral economics. He brings enormous depth of understanding to develop arguments that will leave a lasting mark on how we think about corporate finance, investment strategy, and the role of finance in the economy.” (Yesha Yadav, Associate Professor of Law, Vanderbilt University Law School, USA)
“Chen describes important advances in our understanding of markets and behavior. This book is a comprehensive guideto the 'postmodern' approach to finance.” (José-María Montero Lorenzo, Professor of Statistics, University of Castille-La Mancha, Spain)
“Behavioral finance may not be the “mainstream” asset pricing theory taught and researched, but it has been embraced for decades by financial professionals. Chen provides not only a comprehensive discussion on the risk aversion phenomena observed in markets, but also suggests an innovative approach for understanding and measuring its components.” (Merav Ozair, Assistant Professor of Finance Risk Engineering, New York University, USA)
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