http://allaboutalpha.com/blog/2007/01/31/capm-is-crap-dresdner-kleinwort-economist/ A finance blog about hedge funds, portable alpha and alternative investing. Thu, 09 Feb 2012 19:03:08 +0000 http://wordpress.org/?v=abc hourly 1 http://allaboutalpha.com/blog/2007/01/31/capm-is-crap-dresdner-kleinwort-economist/comment-page-1/#comment-60166 Kutilya Sat, 08 Dec 2007 09:43:02 +0000 http://allaboutalpha.com/blog/2007/01/31/capm-is-crap-dresdner-kleinwort-economist/#comment-60166 Anybody who has done any kind of quantitative research and portfolio construction especially in the equity space knows CAPM falls flat on its face, I don’t see anything new here. Anybody who has done any kind of quantitative research and portfolio construction especially in the equity space knows CAPM falls flat on its face, I don’t see anything new here.

]]> http://allaboutalpha.com/blog/2007/01/31/capm-is-crap-dresdner-kleinwort-economist/comment-page-1/#comment-775 All About Alpha » Blog Archives » Bernstein Goes to Bat for “C.R.A.P.” CAPM Wed, 21 Feb 2007 01:51:28 +0000 http://allaboutalpha.com/blog/2007/01/31/capm-is-crap-dresdner-kleinwort-economist/#comment-775 [...] The weekly investment newsletter “Outside the Box” picks up where a previous edition left off - with James Montier’s assertion that “CAPM is CRAP“.  This week’s edition contains an interview with Peter Bernstein and James Montier conducted by Kathryn Welling. Â As newsletter editor John Mauldin correctly observes, the article is “double the length of normal”. Â Mauldin bills the interview as “Bernstein taking on (Montier’s) criticism of CAPM”.  But unfortunately for those pining for a grudge-match (like us), there seems to be a lot of agreement between Montier and Bernstein.  [...] [...] The weekly investment newsletter “Outside the Box” picks up where a previous edition left off – with James Montier’s assertion that “CAPM is CRAP“.  This week’s edition contains an interview with Peter Bernstein and James Montier conducted by Kathryn Welling. Â As newsletter editor John Mauldin correctly observes, the article is “double the length of normal”. Â Mauldin bills the interview as “Bernstein taking on (Montier’s) criticism of CAPM”.  But unfortunately for those pining for a grudge-match (like us), there seems to be a lot of agreement between Montier and Bernstein.  [...]

]]> http://allaboutalpha.com/blog/2007/01/31/capm-is-crap-dresdner-kleinwort-economist/comment-page-1/#comment-506 All About Alpha » Blog Archives » Beta arbitrage as an alpha opportunity Tue, 06 Feb 2007 04:08:14 +0000 http://allaboutalpha.com/blog/2007/01/31/capm-is-crap-dresdner-kleinwort-economist/#comment-506 [...] Dresdner Kleinwort economist James Montier refered to this article in a recent piece.  As Montier pointed out, Vuolteenaho argues that low beta stocks outperform higher beta stocks on a risk-adjusted basis (according to Montier’s own research, they may even outperform on an absolute basis).  Vuolteenaho makes the logical step from this conclusion to the construction of a beta-neutral portfolio consisting of long positions in low beta names and short positions in high beta names.  If this portfolio has a positive gross return, then “CAPM is C.R.A.P.” (to use Montier’s technical jargon).  As this chart copied from the report shows, the CAPM seems especially stinky recently (the “late sample” = 1963-2001 while the “early sample” = 1927-1963). [...] [...] Dresdner Kleinwort economist James Montier refered to this article in a recent piece.  As Montier pointed out, Vuolteenaho argues that low beta stocks outperform higher beta stocks on a risk-adjusted basis (according to Montier’s own research, they may even outperform on an absolute basis).  Vuolteenaho makes the logical step from this conclusion to the construction of a beta-neutral portfolio consisting of long positions in low beta names and short positions in high beta names.  If this portfolio has a positive gross return, then “CAPM is C.R.A.P.” (to use Montier’s technical jargon).  As this chart copied from the report shows, the CAPM seems especially stinky recently (the “late sample” = 1963-2001 while the “early sample” = 1927-1963). [...]

]]> http://allaboutalpha.com/blog/2007/01/31/capm-is-crap-dresdner-kleinwort-economist/comment-page-1/#comment-492 Alpha Male Sun, 04 Feb 2007 23:21:10 +0000 http://allaboutalpha.com/blog/2007/01/31/capm-is-crap-dresdner-kleinwort-economist/#comment-492 From a loyal AllAboutAlpha reader: This scatalogical piece is very interesting and in general I agree with it. His conclusion does bring us back to the central thesis of alpha centric investing though, which is irrefutable in its logic and is expressed so well by Ineichen. Problem is that every discipline has to start off with a straw man. Economists use "perfect competition", geographers, the "isotonic plane" and lawyers, the "rational" man. We have CAPM based on "efficient markets". The point is that we need a standard of perfection to tear down piece by piece to better understand how a system works. The danger is believing the straw man is reality... (AM: excellent point...and *superb* usage of the rather rare word "scatological") From a loyal AllAboutAlpha reader: This scatalogical piece is very interesting and in general I agree with it. His conclusion does bring us back to the central thesis of alpha centric investing though, which is irrefutable in its logic and is expressed so well by Ineichen. Problem is that every discipline has to start off with a straw man. Economists use “perfect competition”, geographers, the “isotonic plane” and lawyers, the “rational” man. We have CAPM based on “efficient markets”. The point is that we need a standard of perfection to tear down piece by piece to better understand how a system works. The danger is believing the straw man is reality… (AM: excellent point…and *superb* usage of the rather rare word “scatological”)

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