I would like to keep up with the various posts of Arun Muralidhar but they are as cantankerous as the blogs of Montaigne and impenetrable as the Maxims of La Rochefoucauld.
I can amuse myself and hopefully you , while I sip a Cotswold gin and tonic (donated by the man himself) and republish this one as it has particular relevance to all our financial lives.
There is no better place to consider these things than on the banks of the river Thames where the wealth of our nation flows by me (Thames Water).
Aron is the dearest of fellows and I hope before too long to understand the theory, but I am happy enough with my gin, with the sunshine of a summer Sunday afternoon on the river.
REALITIVITY IN FINANCE
1. REALITY 1 – Goals are stochastic (e.g., pension liabilities) – and not “Background Risk”, “Habit” or “KUJ” or deterministic as in CAPM
2. REALITY 2- Investors have multiple stochastic goals (retirement, kid’s education, post-retirement health) and not just 1.
3. RELATIVITY 1 – Investors maximize goal-relative risk-adjusted returns – and not “Epstein-Zin” utility functions! or additive utility functions.
4. RELATIVITY 2 – They hire agents/ #assetmanagers to manage portfolios (delegation at many levels – a Board to an investment team; the team to asset managers – passive or active)
5. REALITY/RELATIVITY 3 – They want (hopefully) skillful agents – largely ignored in the literature. So can’t use #Sharpe ratios but must use #Mcube.
6. REALITY 4 – They specify risk through an absolute volatility and a target #trackingerror in their #investment Policy Statements – and not some random/arbitrary “risk aversion” parameter.
REALITY 5 – An effective asset pricing model should also provide consistent #assetallocation and risk-adjusted performance measures to be useful – only #capm does this; 99% of other asset pricing models fail this test (e.g., APT ).
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The Goals and Risk-based Asset Pricing Model (GRAPM)
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DR. ARUN MURALIDHAR
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Practical Application of GRAPM
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DR. ARUN MURALIDHAR
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Collaborators
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DR. ARUN MURALIDHAR
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Journals that Have Published Articles
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DR. ARUN MURALIDHAR
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Related Research
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DR. ARUN MURALIDHAR
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Awards/Podcasts
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DR. ARUN MURALIDHAR
