O'Reilly logo

Multi-Asset Investing: A practical guide to modern portfolio management by Yoram Lustig

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

11. Capital Market Assumptions

Modern portfolio theory provides the methodology for calculating the expected return and risk of portfolios and deriving efficient asset allocations through an optimisation process. The success of MPT heavily depends on formulating forward-looking, underlying asset class assumptions that have a high correlation with actual future results (information coefficient).

The inputs for the SAA process are the Capital Market Assumptions (CMAs), including expected return and risk for each asset class and the correlations among them. The strategic aspect of SAA (Strategic Asset Allocation) means that it has a long horizon of 5 to 10 years and the horizon of the CMAs needs to match it. Most methods for formulating CMAs ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required