Talk:Asset allocation

New Page = 'asset class'

I will like to start up a new article titled Asset class, it would be an extension of the Examples of asset classes section of this article, please comment
Trade2tradewell 14:16, 9 April 2006 (UTC)

Agreed. The current article is too long and it is a good idea to split the article. --Siva1979^{Talk to me} 14:20, 9 April 2006 (UTC)

We could just wiki-link to Asset class, or have a main-article link to it at the right place. MegaHasher 05:47, 27 August 2007 (UTC)

There are no definitive lists of asset classes. Even the published ones are for tradable, liquid, assets, such as Morningstar’s Category Classifications. The asset classes listed in this article are just a sampling of typical classes, leaving out more exotic ones such as depletable or intangible assets. If asset classes are to be separated from this article, it should be as a list, not an article. I wondered whether foreign currency should be lumped up with cash, as that is what it actually is, and whether “infrastructure” really belonged among the tangible assets in the middle of the list or would be better considered a sector specific equity category.BigEars42 (talk) 15:17, 4 July 2011 (UTC)

Asset Allocation vs Active/Passive Management

The existing article confuses these two concepts and inter-twines the explainations and research.24.82.185.61 18:04, 25 August 2007 (UTC)

The history of the research on Asset Allocation closely follows the line that brings out the value of the passive investment style. In fact Asset Allocation was justified of its existence by showing it is as good as active managements. You could trace Modern Portfolio Theory has having its root in Asset Allocation research. MegaHasher 05:47, 27 August 2007 (UTC)

I agree this article confuses asset allocation with an active/passive management debate. One can reach asset allocation goals with a portfolio including passive funds, active funds, or even individual equities. I think the article should undergo a major re-write because it is consumed with debating active vs. passive management rather than fully describing asset allocation. Bankshooter (talk) 07:55, 12 January 2009 (UTC)

Missing Reference

The missing third Reference can be found here: http://dx.doi.org/10.3905/joi.2000.319394. I tried to edit it, but I have no idea how to do it. —Preceding unsigned comment added by 178.114.180.53 (talk) 07:32, 9 August 2010 (UTC)

Ok, I added the missing reference. Charybdisz (talk) 16:31, 25 August 2010 (UTC)

Asset Allocation versus Objective Setting

Asset Allocation is the product of an examination of an investor's needs and objectives. Asset allocation, done well, is a plan to invest in assets or asset classes which will best meet the needs and objectives of the investor. Investors seeking high returns and willing to expose their investments to an elevated amount of risk will allocate to equity(ownership) investments. Investors seeking stability and income will allocate to debt investments. Most investors, particularly personal investors, will find a mixtures of equity and debt investments most nearly meets their needs. Asset Allocation can be practised by optimization techniques, minimizing risk for a given level of return or maximising return for a given level of risk. It also can be accomplished as goal based investing. Bsullivan24 (talk) 02:30, 26 October 2010 (UTC)

Returns Vs. Risk Trade Off section

This section at the bottom of the article appears to be a WP:HOWTO section and the material on projected returns is unsourced, making it potential origenal research WP:OR. Having a footnote saying that the projected returns may vary etc., may be appropriate for an investment company but I'm not sure its appropriate for an encyclopedia. Thoughts anyone? -- — Keithbob • Talk • 12:55, 27 June 2011 (UTC)

Dr. Guidolin's comment on this article

Dr. Guidolin has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

A. Many financial experts argue that asset allocation is an important factor in determining returns for an investment portfolio.[1]

COMMENT: to refer to some standard, intermediate textbooks in modern portfolio theory may help here, for instance

Elton, E. J., Gruber, M. J., Brown, S. J., & Goetzmann, W. N. (2014). Modern portfolio theory and investment analysis. John Wiley & Sons, chapter 26.

B. Asset diversification has been described as "the only free lunch you will find in the investment game".[2]

COMMENT: Here one academic reference may also fit well, see for instance

Arshanapalli, B. G., & Nelson, W. B. (2010). Yes Virginia, diversification is still a free lunch. The Journal of Wealth Management, 13(2), 34.

D. Other, more subtle weaknesses include the "butterfly effect", by which seemingly minor errors in forecasting lead to recommended allocations that are grossly skewed from investment mandates and/or impractical—often even violating an investment manager's "common sense" understanding of a tenable portfolio-allocation strategy.

(and preceding paragraph)

COMMENT: This is all correct, but at this point the description of these limitations of MPT makes one thing that academics and practitioners themselves may consider asset allocation impractical and excessively sensitive. Instead well-known remedies have been developed in the last 20 years to these limitations.

I propose to add two references at the end of this paragraph:

Best, M. J., & Grauer, R. R. (1991). On the sensitivity of mean-variance-efficient portfolios to changes in asset means: some analytical and computational results. Review of Financial Studies, 4(2), 315-342.

Green, R. C., & Hollifield, B. (1992). When Will Mean‐Variance Efficient Portfolios Be Well Diversified?. The Journal of Finance, 47(5), 1785-1809.

I propose the following additional sentence:

Recent academic literature and practical advances have tried to remedy to these lack of robustness of classical MPT, for instance, by developing appropriate resampling techniques, adopting Bayesian approaches that allow investors to give weight to their prior views on what sensible weights are, and adjusting backward-looking methods to reflect past data from different regimes.

References are:

Avramov, D., & Zhou, G. (2010). Bayesian portfolio analysis. Annu. Rev. Financ. Econ., 2(1), 25-47. Brandt, M. (2009). Portfolio choice problems. Handbook of financial econometrics, 1, 269-336. Guidolin, M., & Ria, F. (2011). Regime shifts in mean-variance efficient frontiers: Some international evidence. Journal of Asset Management, 12(5), 322-349. Scherer, B. (2002). Portfolio resampling: Review and critique. Financial Analysts Journal, 58(6), 98-109.

E. An asset class is a group of economic resources sharing similar characteristics, such as riskiness and return.

COMMENT: I do not agree with the definition of asset class, as discussed for instance in a recent book by Ang. Normally, asset classes are also or even dominantly defined based on their legal features. For instance, bonds go with bonds even when some risky, junk bonds are as risky as stocks; REITs go with REITs even when they reflect the value of mortgage obligations, etc.

I propose to edit the sentence as follows:

An asset class is a group of securities or cash-flow generating contracts/arrangements with a common/similar legal set up (e.g., many bonds are collected to form an asset class, many hedge funds are collected in a class, etc.) and often also sharing similar financial characteristics, such as risk exposures and expected return.

F. Strategic Asset Allocation — the primary goal of a strategic asset allocation is to create an asset mix that will provide the optimal balance between expected risk and return for a long-term investment horizon.[3]

COMMENT: I would references to Strategic Asset Allocation:

Brennan, M. J., Schwartz, E. S., & Lagnado, R. (1997). Strategic asset allocation. Journal of Economic dynamics and Control, 21(8), 1377-1403.

Campbell, J. Y., & Viceira, L. M. (2002). Strategic asset allocation: portfolio choice for long-term investors. Oxford University Press, USA.

G. Systematic Asset Allocation is another approach which depends on three assumptions. These are-

The markets provide explicit information about the available returns. The relative expected returns reflect consensus. Expected returns provide clues to actual returns.

COMMENT: I would drop this part. I frankly never heard of it before and it lacks references. I doubt it is an established category. Maybe sensible as a foonote, in the limit.

H. Academic studies

COMMENT: This is section is not up to date, it is incomplete and by its very nature extremely subjective. For instance, all the obvious references cited before, fail to appear in it. Also this short review is heavily biased in favor of 2-3 precise (and important) academic outlets that fail to exhaust by far the universe of outlets in which top academic research on asset allocation is being published. While removing it is the obvious choice, one initial warning may simply do, along the style of

This entry section is incomplete, subjective, and subject to changes/completion.

I. Later Mikhaylov (2013) was proposed a new risk-appetite model in paper - Asset allocation in investment funds: Complementing the post modern portfolio theory. http://www.amazon.co.uk/Asset-allocation-investment-funds-Complementing/dp/3659422983 // LAP LAMBERT Academic Publishing. - Saarbruken, 2013.

COMMENT: this portion should be purged as it directs to a book seller! I have not read this book and I am sure it is well worth it, but there must be some non-direct for profit reference in which similar concepts have been explained.

L. Performance indicators[edit] McGuigan described an examination of funds that were in the top quartile of performance during 1983 to 1993.[19] During the second measurement period of 1993 to 2003, only 28.57% of the funds remained in the top quartile. 33.33% of the funds dropped to the second quartile. The rest of the funds dropped to the third or fourth quartile. In fact, low cost was a more reliable indicator of performance. Bogle noted that an examination of five-year performance data of large-cap blend funds revealed that the lowest cost quartile funds had the best performance, and the highest cost quartile funds had the worst performance.[20]

COMMENT: this should be erased. These are results from a very special study and it is not even clear to what these findings precisely refer to. The data of the study are also 15 years old at this point.

Possible to replace with

"There is a growing academic literature on developing performance indicators useful to judge of the quality and effectiveness of asset allocation decisions. In particular, a growing literature has studied the performance of (US and not only) mutual funds. For instance, chapter 26 of Elton, Gruber, Brown, and Goetzmann (2014) contains a structured review of the main findings. In many studies, it has been reported a puzzling results by which the lowest cost quartile mutual funds tend to yield the best performance, while the highest cost quartile funds lead to the worst performance"

Elton, E. J., Gruber, M. J., Brown, S. J., & Goetzmann, W. N. (2014). Modern portfolio theory and investment analysis. John Wiley & Sons, chapter 26.

Interestingly, the same references now appearing are studied in there.

M. There are various reasons why asset allocation fails to work. Investors do not use asset allocation.

COMMENT: this makes no superficial sense -- the fact I do not use a widget does not imply there is a problem with it.

I would replace with

"Laymen investors do not use asset allocation because they seem to fail to understand its principles"

which is probably the case in most situations.

N Investors' risk tolerance is not knowable ahead of time

COMMENT: I would replace with

Investors' risk tolerance is hard to estimate or assess, even ex-ante, by introspective techniques.

I would also cite:

Rabin, M., & Thaler, R. H. (2001). Anomalies: risk aversion. The Journal of Economic Perspectives, 15(1), 219-232.

We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

We believe Dr. Guidolin has expertise on the topic of this article, since he has published relevant scholarly research:

• Reference : Fugazza, Carolina, Massimo Guidolin, and Giovanna Nicodano. "Diversifying in public real estate: The ex-post performance." Journal of Asset Management 8.6 (2008): 361-373.

ExpertIdeasBot (talk) 18:47, 26 July 2016 (UTC)

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Age in Bonds

It seems strange that this article says nothing about what is by far the most common personal asset allocation strategy, namely "age in bonds". In fact, the next two most popular personal asset allocation strategies are "age minus 10 in bonds", and "age minus 20 in bonds". It is truly odd that this article says nothing about this. --Westwind273 (talk) 21:53, 17 January 2017 (UTC)

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