Chapter
Section Two: Fallacies of Asset Allocation
Chapter 3: The Importance of Asset Allocation
Fallacy: Asset Allocation Determines More Than 90 Percent of Performance
The Determinants of Portfolio Performance
The Behavioral Bias of Positive Economics
Chapter 4: Time Diversification
Fallacy: Time Diversifies Risk
Time, Volatility, and Probability of Loss
Time and Expected Utility
A Preference-Free Contradiction to Time Diversification
Chapter 5: Error Maximization
Fallacy: Optimized Portfolios Are Hypersensitive to Input Errors
Fallacy: Factors Offer Superior Diversification and Noise Reduction
Equivalence of Asset Class and Factor Diversification
Where Does This Leave Us?
Fallacy: Equally Weighted Portfolios Are Superior to Optimized Portfolios
Setting the Record Straight
Empirical Evidence in Defense of Optimization
Practical Problems with 1/N
Section Three: Challenges to Asset Allocation
Chapter 8: Necessary Conditions for Mean-Variance Analysis
Departures from Elliptical Distributions
Departures from Quadratic Utility
The Curse of Dimensionality
Applying Full-Scale Optimization
Mean-Variance-Tracking Error Optimization
Chapter 10: Currency Risk
Why Not Hedge Everything?
Linear Hedging Strategies
Nonlinear Hedging Strategies
Shadow Assets and Liabilities
Expected Return and Risk of Shadow Allocations
Chapter 12: Risk in the Real World
End-of-Horizon Exposure to Loss
Within-Horizon Exposure to Loss
Chapter 13: Estimation Error
Traditional Approaches to Estimation Error
Stability-Adjusted Optimization
Building a Stability-Adjusted Return Distribution
Determining the Optimal Allocation
Chapter 14: Leverage versus Concentration
The Dynamic Programming Solution
The Markowitz-van Dijk Heuristic
Chapter 16: Regime Shifts
Predictability of Return and Risk
Regime-Sensitive Allocation
Tactical Asset Allocation
Appendix: Baum-Welch Algorithm
Chapter 17: Key Takeaways
Chapter 18: Statistical and Theoretical Concepts
Discrete and Continuous Returns
Arithmetic and Geometric Average Returns
Maximum Likelihood Estimation
Mapping High-Frequency Statistics onto Low-Frequency Statistics
Probability Distributions
The Central Limit Theorem
The Lognormal Distribution
Alternative Utility Functions
Mean-Variance Analysis for More Than Two Assets
Equivalence of Mean-Variance Analysis and Expected Utility Maximization
Chapter 19: Glossary of Terms
A Practitioner's Guide to Asset Allocation
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