标题: Complete Contradition in Individual vs. Institutional IM Approach [打印本页] 作者: ASSet_MANagemen 时间: 2011-7-13 13:11 标题: Complete Contradition in Individual vs. Institutional IM Approach
So as I review the notes in the behavioral finance stuff, having just reviewed the insitutitonal IPs stuff, I find both these sections to be completely contradictory.
To summarize - the behavioral finance section makes a big deal about individuals being idiots and "pyramiding" their portfolios, with "essential" future needs at the bottom, and "aspirational" desires at higher "layers". Per the text, to put it bluntly, is a BAD way to structure a portfolio.
My question - how is that so different than what institutions do? Insurance companies, banks, DB plans - they all have "essential" liabilities that need to be fulfilled, which they usually cover with fixed income instruments/duration matching, etc. Then use surplus to be more aggressive and grow. Uh...isn't this pyramiding as well?
Honestly, I don't understand why the CFA makes a big deal out of modern portfolio theory being a "better" approach to pyramiding when most of the big institutions do the same dang thing. Makes me think this CFA stuff is more focused on theory than practicallity?作者: Windjammer 时间: 2011-7-13 13:11
It may be because the pyramiding in institutional portfolios like insurance and banks is a regulatory requirement, even though it is not the most efficient arrangement. I am just guessing.作者: Darien 时间: 2011-7-13 13:11
after the exam let's criticize cfa作者: bpdulog 时间: 2011-7-13 13:11
I thought the same exact thing when I read the material.
Individuals segment portfolios to achieve individual goals because they're irrational poop-tards, but when life insurers do it ...作者: jmh530 时间: 2011-7-13 13:11
In behavioral finance theory, they are presenting an alternative to modern portfolio theory. Maybe you can call it "postmodern" portfolio theory. In any case, they are not saying pyramiding is bad. They're just saying that this is 1 way to structure a portfolio. Also, I think you're misinterpreting the pyramid. The lower layers are not the essentials. They are the low risk assets.作者: NakedPuts00 时间: 2011-7-13 13:11
One is to match liabilities in a very efficient and extremely precise manner. The other is to match assets in a less than efficient manner. I guess I don't see the similarity.作者: Colum 时间: 2011-7-13 13:11
its an interesting observation, but I'm w. janakisri on this one: let's indulge this to our hearts content next monday作者: former 时间: 2011-7-13 13:11
Paraguay Wrote:
-------------------------------------------------------
> One is to match liabilities in a very efficient
> and extremely precise manner. The other is to
> match assets in a less than efficient manner. I
> guess I don't see the similarity.
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.作者: Analti_Calte 时间: 2011-7-13 13:11
I think the time horizon's are much much different between the two.
In an individual's case, when there is a big payment coming due and its soon, you are told to take the PV of it and ex it out of the investable portfolio.... just like the insurance companies do (separating the surplus / regular portfolio)....
Pretty consistent in that way作者: Chuckrox 时间: 2011-7-13 13:11
Lobsterboy - actually they do say pyramiding is bad. Pyramiding = segmenting portfolio, which by CFA and modern portfolio theory, is sub-optimal. And yes, you're right - the lower (or lowest) level are the low risk assets, which are specifically chosen to satisfy the individual's critical goals (college for kiddies) - this seems eerily familiar to an insurance company IMMUNIZING their actuarial assumed liabilities, no?
Then, when the individual has "satsified" or immunized their most important liabilities, they move up the pyramid and focus on higher risk/higher return securities to hopefully achieve "desired" items - house in the hollywood hills. Again, that seems eerily familiar to a "surplus portfolio", which is invested in venture cap, private equity, etc.
If modern portfolio theory is so right and individuals shouldn't follow this segmented approach, I'd like to see banks, pension funds, etc. grow some nutz and use a "diversified portfolio theory" to satisfy all their return, risk needs.
But I digress...I'm going to go back to being brainwashed into CFA = god's law. The emperor is wearing really nice clothes...作者: NakedPuts2011 时间: 2011-7-13 13:11
Nitz25 Wrote:
-------------------------------------------------------
> 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!作者: lcai 时间: 2011-7-13 13:11
The materials are a collection of books not written per se by the CFA Institute themselves. Contradiction is of course expected.作者: skycfa 时间: 2011-7-13 13:11
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.作者: ohai 时间: 2011-7-13 13:11
I think "behavioural finance" itself is still under academic debate.
There are many scholars wouldn't accept it into main stream financial theory.
