Assuming a client’s goals, resources, and constraints have been clearly identified, when constructing an asset allocation instead of using a generic efficient frontier a client should have his or her own efficient frontier. What is efficient for one person may not be efficient for another. In...

Instead of modeling asset price and currency risks separately, this paper derives the international hedge portfolio, hedging asset price and currency risk simultaneously for estimating the dynamic international optimal hedge ratio. The model estimation is specified in a multivariate GARCH...

It has become almost conventional wisdom that investors should avoid funds with high expense ratios. Like many nuggets of conventional wisdom, there is some truth, but many exceptions: some of the best funds come at the price of higher expense ratios. Financial planners need this type of...

Applying cointegration analysis to security price movements illustrates how securities move together in the long-term. This can be augmented with an error-correction model to show how the long-run relationship is approached when the security prices are out of line with their cointegrated...

Option pricing and allocation tools in portfolio construction should be prospective - based on assumptions about how prices will change in the future. Most capital market assumptions used in portfolio construction are based on retrospective analysis, boiling down to simple calculations of...

The popular media suggest that the Federal Reserve is 'all powerful' in determining things like interest rates and inflation, but this is not true. The Fed controls currency and reserves - imperfectly - but the money supply is determined by the numerous decisions of borrowers and lenders to...

Through a mathematical programming setup, reserve accounting is shown to be auxiliary to accomplishing monetary policy operating objectives. This article outlines a theoretical way of comparing the potency of open market operations under different reserve accounting procedures. It is shown that...