CFA Society Boston: "Is Quant Fundamentally Flawed?"
In a forthcoming paper in the Journal of Investing,* Dr. Richard Michaud and Dr. David Esch present important new research on the likely limitations of a number of popular active quant investment strategies.
For nearly thirty years, textbooks, formal university courses, journal articles, conferences, and institutional marketing have touted claims of applications of the Grinold (1989) "Fundamental Law" theory that may add investment value to optimized strategies even when only a small level of information is available. Dr. Richard Michaud and Dr. David Esch show that many popular strategies associated with Grinold theory are likely unreliable and self-defeating. This is because estimation error (Michaud 1989) and constraints required in practical application are ignored. They show that far more information than commonly assumed and appropriate portfolio structure are likely necessary for outperformance in practice.
Richard Michaud, Ph.D. | Dr. Richard Michaud is the President and Chief Executive Officer at New Frontier. He earned a Ph.D. in Mathematics from Boston University and has taught investment management at Columbia University. He is the author of Efficient Asset Management: A Practical Guide to Stock Portfolio Optimization and Asset Allocation (1998, 2nd ed. 2008 with Robert Michaud), a CFA Research Monograph (1999) on Global Asset Management, and numerous academic and research articles available on www.ssrn.com and www.researchgate.net. He is co-holder of four U.S. patents in portfolio optimization and asset management, a Graham and Dodd Scroll winner for his work on optimization, a former editorial board member of the Financial Analysts Journal, associate editor of the Journal Of Investment Management, and former director of the "Q" Group. Back To Top ^^
David Esch, Ph.D. | Dr. David Esch is the Managing Director of Research at New Frontier, having joined the firm in 2008. Dr. Esch completed his Ph.D. in Statistics at Harvard University in 2004. His specialties include mathematical statistics, numerical analysis and computation, Bayesian statistics, and econometrics. He is author of the article "Non Normality Facts and Fallacies," (Journal Of Investment Management 1st Quarter 2010), selected as one of the best JOIM papers of 2010, and co-author of many other peer-reviewed journal articles. His educational background also includes a Bachelor of Arts degree from Harvard College and a Masters degree in Mathematics and Statistics from Boston University. Back To Top ^^
|As a participant in the CFA Institute Approved-Provider Program, the CFA Society of Los Angeles has determined that this program qualifies for 2 credit hours. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE Diary.|