Improving Investment Models For Pension Funds: How Are We Doing?

“The Adaptive Markets Hypothesis (AMH) looks at financial markets as a dynamic ecosystem. This allows us to understand the relation between investment performance and the interactions of various types of investors. You may not be able to time the markets day by day, but you can certainly see trends over longer holding periods.”

Andrew Lo (2004)

“Knight and Keynes lost the battle to put radical uncertainty at the heart of economic analysis….so instead, organizations are run with reliance on models which claim knowledge of the future that we do not have.”  

John Kay and Mervyn King (2020)

“Traditional investment paradigms fall short in the current era of interconnected challenges, which include rapid technological shifts, geopolitical changes, and environmental pressures. Our goal is to contribute to the development of a resilient investment framework that enables investors to navigate current challenges and anticipate future uncertainties.”

Herman Bril and Willem Schramade (2023)

When Modern Portfolio Theory Was Modern

Modern Portfolio Theory (MPT) and I both entered the investment world some 50 years ago. Fate would have it that my first job in that investment world (1969) was to understand MPT, and to assess its practical relevance to institutional investment departments. A decade later (1979) the Financial Analysts Journal published my conclusions (with Jim Farrell) in an article titled “Can Active Management Add Value?”. The short answer was ‘yes’, but only under a series of conditions that were very difficult to replicate in ‘real world’ institutional investment departments.