NakedPuts2011

Nitz25 Wrote:
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> Future cash payments for children's college
> tuition
> vs.
> Future cash payments for policy holder's annuity
> payouts
>
> Both are future liabilities for which you could
> create a separate portfolio of conservative fixed
> income assets with matched durations. CFA says
> one approach is a behavioral bias and the other is
> a institutional best practice.
>
> That's the similarity and the contradiction.

EXACTLY!

lcai

The materials are a collection of books not written per se by the CFA Institute themselves. Contradiction is of course expected.

skycfa

wangta01, yes pyramiding does conflict with modern portfolio theory. But the people behind behavioral finance disagree with modern portfolio theory. You say that pyramiding disagrees with CFA. That's not true. CFAI is presenting behavioral finance as an ALTERNATIVE to modern portfolio theory. They are not explicitly endorsing or condemning either approach.

ohai

I think "behavioural finance" itself is still under academic debate.

There are many scholars wouldn't accept it into main stream financial theory.