Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Bill Sharpe gives CAPM a makeover
Old 10-09-2006, 11:35 AM   #1
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,619
Bill Sharpe gives CAPM a makeover

After 42 years, Bill Sharpe thinks he can do better than the capital asset pricing model he helped Markowitz develop.

"His latest book, 'Investors and Markets: Portfolio Choices, Asset Prices and Investment Advice,' may send investors and academics scurrying. Published this month by Princeton University Press, the book eschews mean-variance analysis - the mathematically complex formula that relates rewards to risks of securities or portfolios - in favor of a "state preference" approach that relies on an easy-to-understand simulation. That approach is based on a model closer to that used in financial engineering than in the ivory tower. 'I think of it as "beyond mean-variance,"' Mr. Sharpe said in an interview."

Instead of focusing on risk vs reward he's looking at the fat left end of the bell curve where the bubbles, depressions, hyperinflation, and terrorist attacks reside. He tries to provide a way to estimate an investor's desire for protection and he acknowledges that investors aren't rational.

Unfortunately Markowitz doesn't agree with the new concept and the two may be having a cage match next week... I think I'm just going to watch the reviews and hold off reading the book for another six months or so.

[Edit: The linked article was first posted by FundAlarm's Ted.]
__________________

__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Bill Sharpe gives CAPM a makeover
Old 10-09-2006, 01:09 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Re: Bill Sharpe gives CAPM a makeover

Don't do it, Bill...............all my memorization will be for naught..........
__________________

__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Re: Bill Sharpe gives CAPM a makeover
Old 10-09-2006, 01:23 PM   #3
Recycles dryer sheets
 
Join Date: Sep 2006
Posts: 142
Re: Bill Sharpe gives CAPM a makeover

This is facinating, although probably too early to judge.

I've been in a lonely camp for a while, questioning our blind reliance on mean-variance and optimization and I seem to get flamed or made fun of whenever I do it.

I'm interested in his thesis and what he proposes as the "new optimizer".

The work by Benoit Mandelbrot in "MisBehavior of Markets" was really interesting, right up to when he got to the part about what to do next.

We'll see if Sharpe has the same problem.

Thanks for reference Nords...

Jim
__________________
magellan_nh is offline   Reply With Quote
Re: Bill Sharpe gives CAPM a makeover
Old 10-09-2006, 01:28 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Bill Sharpe gives CAPM a makeover

Quote:
Originally Posted by magellan
I've been in a lonely camp for a while, questioning our blind reliance on mean-variance and optimization and I seem to get flamed or made fun of whenever I do it.
I'm not about to get upset by someone deviating from the theory, or mean-variance optimization, or CAPM. It is too easy to point to exceptions all over the place. The problem is that there isn't really anything better as of yet. So while one shouldn't be too rigid on this stuff, I don;t think the world of academic finance has come up with anything beter just yet.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Bill Sharpe gives CAPM a makeover
Old 10-09-2006, 02:26 PM   #5
Recycles dryer sheets
 
Join Date: Sep 2006
Posts: 142
Re: Bill Sharpe gives CAPM a makeover

Quote:
Originally Posted by brewer12345
The problem is that there isn't really anything better as of yet. So while one shouldn't be too rigid on this stuff, I don;t think the world of academic finance has come up with anything beter just yet.
I agree 100% and that's the dilemma. MPT is the worst theory except for all the others that have been tried from time to time.

Now I have to go find some leaches M* tables so I can give my portfolio that much needed blood-letting rebalancing

Jim
__________________
magellan_nh is offline   Reply With Quote
Re: Bill Sharpe gives CAPM a makeover
Old 10-09-2006, 02:29 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,646
Re: Bill Sharpe gives CAPM a makeover

Quote:
Originally Posted by magellan

The work by Benoit Mandelbrot in "MisBehavior of Markets" was really interesting, right up to when he got to the part about what to do next.
Uh, oh. If he's involved does that mean market performance is fractal? Or is he the fractal and chaotic guy? Stop flapping those butterfly wings or I will have to buy an annuity.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is offline   Reply With Quote
Re: Bill Sharpe gives CAPM a makeover
Old 10-09-2006, 02:35 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Re: Bill Sharpe gives CAPM a makeover

Quote:
Originally Posted by donheff
Uh, oh. If he's involved does that mean market performance is fractal? Or is he the fractal and chaotic guy? Stop flapping those butterfly wings or I will have to buy an annuity.
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Re: Bill Sharpe gives CAPM a makeover
Old 10-09-2006, 02:44 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,409
Re: Bill Sharpe gives CAPM a makeover

Da Norwegian widder says: Dividends! Get the dividends.

Of course when whole markets go ka-poof - then perhaps ?world dividends?

Wonder if Bernstein will check in with Angus Maddison.

heh heh heh heh heh
__________________
unclemick is offline   Reply With Quote
Re: Bill Sharpe gives CAPM a makeover
Old 10-09-2006, 03:08 PM   #9
Recycles dryer sheets
 
Join Date: Sep 2006
Posts: 142
Re: Bill Sharpe gives CAPM a makeover


FYI, until Sharpe's book is published, he's offering the first two chapters on his web site at http://www.stanford.edu/~wfsharpe/ for free download.

Jim
__________________
magellan_nh is offline   Reply With Quote
Re: Bill Sharpe gives CAPM a makeover
Old 10-09-2006, 04:51 PM   #10
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,619
Re: Bill Sharpe gives CAPM a makeover

Quote:
Originally Posted by donheff
Uh, oh. If he's involved does that mean market performance is fractal? Or is he the fractal and chaotic guy? Stop flapping those butterfly wings or I will have to buy an annuity.
Yeah, you and the Elliott Wave zealots...
__________________

__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
The perils of technology-- got a $200 electric bill this month Nords FIRE and Money 23 05-28-2007 09:00 PM
Qaeda's Zawahri says Iraq bill shows U.S. defeat dex Other topics 9 05-07-2007 04:34 PM
Best Online Bill Pay? Mysto FIRE and Money 14 10-05-2006 09:32 AM
Bad news insurance bill Martha FIRE and Money 6 05-08-2006 10:37 AM
Poor Bill & Julie, @ age 60 w/$1M can't retire Telly Other topics 13 11-16-2003 05:31 AM

 

 
All times are GMT -6. The time now is 05:00 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.