Читать книгу Behavioral Portfolio Management - C. Thomas Howard - Страница 9

I received my PhD in 1978 at what I now realize was the peak of Modern Portfolio Theory (MPT). Having a strong quant background, I was thrilled to see firsthand the launch of a simple, concise theory of capital market equilibrium. The rational behavior model, first proposed by Bernoulli in 1738, had become the standard within the social sciences and now, with the emergence of MPT, it was being placed at the very heart of finance.

But quickly it became apparent that MPT was not living up to its advanced billing. As I graduated, the small firm effect was being reported by Banz and the low PE effect was being reported by Basu. These two anomalies simultaneously challenged the Efficient Market Hypothesis (EMH) as well as the Capital Asset Pricing Model (CAPM), two pillars of MPT. Since then it has only gotten worse, with the CAPM now thoroughly discredited and the EMH riddled with gaping holes.

What is more, I now realize that the third pillar of MPT is built on emotionally-driven market volatility. That is, mean-variance optimization places emotions at the center of portfolio construction. Thus it is surprising to discover that, by focusing on volatility in building long-term portfolios, both emotions and returns are reduced while risk is increased. By using what is one of the most widely accepted portfolio models (its creator was awarded an Economics Nobel Prize in 1990), you are actually succumbing to the Crowd.

As my career progressed, the growing body of empirical evidence has led me to reject MPT in its entirety. In the spirit of Levitt and Dubner, I found conventional wisdom in the form of MPT to be wrong. The underlying data point to a much different reality – that is behavioral finance in which investors make emotional rather than rational decisions. In a variation on Levitt and Dubner’s economics versus morality observation, it turns out that if MPT is the way investors ought to act, behavioral finance is the way they act in reality. Thus I concluded, with some nostalgia for the less messy way of viewing financial markets, that building portfolios based on MPT concepts is hazardous to your wealth. I view BPM as an alternative to MPT.