Dr. Peng Chen, CEO Asia (ex-Japan) at Dimensional Fund Advisors, discusses the latest development in investment portfolio management that deals with the key challenges that are once again highlighted by the global financial crisis.
Dr. Peng Chen, CEO Asia (ex-Japan) at Dimensional Fund Advisors, discusses the latest development in investment portfolio management that deals with the key challenges that are once again highlighted by the global financial crisis. Investment returns are not normally distributed, and in this non-Gaussian world, the traditional mean-variance framework has proven again and again to be inadequate in practice. Tools such as conditional value-at-risk and truncated Lévy flight that deal with skewness, kurtosis, and fat tails are discussed, along with the importance of focusing on capturing broad market or beta returns in the long term and avoiding the temptation of mainly pursuing alpha. In addition, the equity risk premium and the long-term return of stocks over bonds and cash, market anomalies and tilting portfolios toward small capitalization and value stocks in capturing the risk premiums, the importance of portfolio implementation and smart trade execution, as well as the wealth management landscape in the Asia-Pacific are also explored.
The Take 15 Series is a series of short interviews with leading practitioners on timely topics focused on the investment profession.