Systematic Investing

Sources of Performance Decay

Above all, the greatest fear in empirical finance is that the out of sample results for a strategy under investigation will be materially weaker than the results derived from testing. There is absolutely no doubt that a meaningful portion of observed out-of-sample performance decay is the result of arbitrage; that is, others discovering and concurrently exploiting the same anomaly.

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Structural Diversification for All Seasons

Now that we are hip deep in our Dynamic Asset Allocation for Practitioners series (Parts I, II and III), it’s become evident that we may have skipped over some fundamental concepts in our rush to explore the more juicy material. This next series of posts is intended to lay the groundwork for how we think about the broader asset allocation problem.

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The Whole is Greater than the Sum of the Parts

One of the most mind-blowing implications of portfolio theory is that a well conceived portfolio has the potential to be much better, in terms of risk adjusted performance, than what we might expect from the sum of the individual portfolio holdings.

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