Market anomalies and tactical asset allocation: Utilising market anomalies in multiple asset class portfolios with the Black−Litterman model

This thesis discusses the basic problem of the modern portfolio theory about how to optimise the perfect allocation for an investment portfolio. The theory provides a solution for an efficient portfolio, which minimises the risk of the portfolio with respect to the expected return. A central feature for all the portfolios on the efficient frontier is that the investor needs to provide the expected return for each asset. Market anomalies are persistent patterns seen in the financial markets, which cannot be explained with the current asset pricing theory. The goal of this thesis is to study whether these anomalies can be observed among different asset classes. Finally, if persistent patterns are found, it is investigated whether the anomalies hold valuable information for determining the expected returns used in the portfolio optimization Market anomalies and investment strategies based on them are studied with a rolling estimation window, where the return for the following period is always based on historical information. This is also crucial when rebalancing the portfolio. The anomalies investigated within this thesis are value, momentum, reversal, and idiosyncratic volatility. The research data includes price series of country level stock indices, government bonds, currencies, and commodities. The modern portfolio theory and the views given by the anomalies are combined by utilising the Black-Litterman model. This makes it possible to optimise the portfolio so that investor’s views are taken into account. When constructing the portfolios, the goal is to maximise the Sharpe ratio. Significance of the results is studied by assessing if the strategy yields excess returns in a relation to those explained by the threefactormodel. The most outstanding finding is that anomaly based factors include valuable information to enhance efficient portfolio diversification. When the highest Sharpe ratios for each asset class are picked from the test factors and applied to the Black−Litterman model, the final portfolio results in superior riskreturn combination. The highest Sharpe ratios are provided by momentum strategy for stocks and long-term reversal for the rest of the asset classes. Additionally, a strategy based on the value effect was highly appealing, and it basically performs as well as the previously mentioned Sharpe strategy. When studying the anomalies, it is found, that 12-month momentum is the strongest effect, especially for stock indices. In addition, a high idiosyncratic volatility seems to be positively correlated with country indices on stocks.

Future operational-tactical level warfare : challenges and opportunities for the defence of Finland

Finnish Defence Studies is published under the auspices of the National Defence College, and the contributions reflect the fields of research and teaching of the College. Finnish Defence Studies will occasionally feature documentation on Finnish Security Policy. Views expressed are those of the authors and do not necessarily imply endorsement by the National Defence College.

PERFORMANCE ANALYSIS OF A TACTICAL ASSET ALLOCATION – Evidence from the Black–Litterman model based fixed income portfolio

Over time the demand for quantitative portfolio management has increased among financial institutions but there is still a lack of practical tools. In 2008 EDHEC Risk and Asset Management Research Centre conducted a survey of European investment practices. It revealed that the majority of asset or fund management companies, pension funds and institutional investors do not use more sophisticated models to compensate the flaws of the Markowitz mean-variance portfolio optimization. Furthermore, tactical asset allocation managers employ a variety of methods to estimate return and risk of assets, but also need sophisticated portfolio management models to outperform their benchmarks. Recent development in portfolio management suggests that new innovations are slowly gaining ground, but still need to be studied carefully. This thesis tries to provide a practical tactical asset allocation (TAA) application to the Black–Litterman (B–L) approach and unbiased evaluation of B–L models’ qualities. Mean-variance framework, issues related to asset allocation decisions and return forecasting are examined carefully to uncover issues effecting active portfolio management. European fixed income data is employed in an empirical study that tries to reveal whether a B–L model based TAA portfolio is able outperform its strategic benchmark. The tactical asset allocation utilizes Vector Autoregressive (VAR) model to create return forecasts from lagged values of asset classes as well as economic variables. Sample data (31.12.1999–31.12.2012) is divided into two. In-sample data is used for calibrating a strategic portfolio and the out-of-sample period is for testing the tactical portfolio against the strategic benchmark. Results show that B–L model based tactical asset allocation outperforms the benchmark portfolio in terms of risk-adjusted return and mean excess return. The VAR-model is able to pick up the change in investor sentiment and the B–L model adjusts portfolio weights in a controlled manner. TAA portfolio shows promise especially in moderately shifting allocation to more risky assets while market is turning bullish, but without overweighting investments with high beta. Based on findings in thesis, Black–Litterman model offers a good platform for active asset managers to quantify their views on investments and implement their strategies. B–L model shows potential and offers interesting research avenues. However, success of tactical asset allocation is still highly dependent on the quality of input estimates.

Global coordination: weighted voting

In order to halt the depletion of global ecological capital, a number of different kinds of meetings between Governments of countries in the world has been scheduled. The need for global coordination of environmental policies has become ever more obvious, supported by more and more evidence of the running down of ecological capital. But there are no formal or binding arrangements in sight, as global environmental coordination suffers from high transaction costs (qualitative voting). The CO2 equivalent emissions, resulting in global warming, are driven by the unstoppable economic expansion in the global market economy, employing mainly fossil fuel generated energy, although at the same time lifting sharply the GDP per capita of several emerging countries. Only global environmental coordination on the successful model of the World Band and the IMF (quantitative voting) can stem the rising emissions numbers and stop further environmental degradation. However, the system of weighted voting in the WB and the IMF must be reformed by reducing the excessive voting power disparities, for instance by reducing all member country votes by the cube root expression.

Letter to S.D. Woodruff from John I. Mackenzie regarding the printing of voting blanks

Letter to S.D. Woodruff from John I. Mackenzie regarding the printing of voting blanks 1 doublesided page, handwritten), Apr. 3, 1878.

Tactical Vehicle Routing Planning with Application to Milk Collection and Distribution

De nombreux problèmes pratiques qui se posent dans dans le domaine de la logistique, peuvent être modélisés comme des problèmes de tournées de véhicules. De façon générale, cette famille de problèmes implique la conception de routes, débutant et se terminant à un dépôt, qui sont utilisées pour distribuer des biens à un nombre de clients géographiquement dispersé dans un contexte où les coûts associés aux routes sont minimisés. Selon le type de problème, un ou plusieurs dépôts peuvent-être présents. Les problèmes de tournées de véhicules sont parmi les problèmes combinatoires les plus difficiles à résoudre. Dans cette thèse, nous étudions un problème d’optimisation combinatoire, appartenant aux classes des problèmes de tournées de véhicules, qui est liée au contexte des réseaux de transport. Nous introduisons un nouveau problème qui est principalement inspiré des activités de collecte de lait des fermes de production, et de la redistribution du produit collecté aux usines de transformation, pour la province de Québec. Deux variantes de ce problème sont considérées. La première, vise la conception d’un plan tactique de routage pour le problème de la collecte-redistribution de lait sur un horizon donné, en supposant que le niveau de la production au cours de l’horizon est fixé. La deuxième variante, vise à fournir un plan plus précis en tenant compte de la variation potentielle de niveau de production pouvant survenir au cours de l’horizon considéré. Dans la première partie de cette thèse, nous décrivons un algorithme exact pour la première variante du problème qui se caractérise par la présence de fenêtres de temps, plusieurs dépôts, et une flotte hétérogène de véhicules, et dont l’objectif est de minimiser le coût de routage. À cette fin, le problème est modélisé comme un problème multi-attributs de tournées de véhicules. L’algorithme exact est basé sur la génération de colonnes impliquant un algorithme de plus court chemin élémentaire avec contraintes de ressources. Dans la deuxième partie, nous concevons un algorithme exact pour résoudre la deuxième variante du problème. À cette fin, le problème est modélisé comme un problème de tournées de véhicules multi-périodes prenant en compte explicitement les variations potentielles du niveau de production sur un horizon donné. De nouvelles stratégies sont proposées pour résoudre le problème de plus court chemin élémentaire avec contraintes de ressources, impliquant dans ce cas une structure particulière étant donné la caractéristique multi-périodes du problème général. Pour résoudre des instances de taille réaliste dans des temps de calcul raisonnables, une approche de résolution de nature heuristique est requise. La troisième partie propose un algorithme de recherche adaptative à grands voisinages où de nombreuses nouvelles stratégies d’exploration et d’exploitation sont proposées pour améliorer la performances de l’algorithme proposé en termes de la qualité de la solution obtenue et du temps de calcul nécessaire.

Practices of Local Social Forums: The Building of Tactical and Cultural Collective Action Repertoires

Since the first edition of the World Social Forum in Porto Alegre, Brazil, 2001, similar initiatives have flourished at the local scales. In the existing literature, local social forums are generally considered to be a natural replication of the world social forums. Beyond the label “social forums,” what do the practices of local social forums specifically entail and what is the meaning of these practices for local activists?I propose a comparison of eight cases situated in two distinct societies (Quebec and France). I use a multi-approach methodology, combining direct observation, focus groups, interviews, and documentary analysis.I show that despite strong national differences, a highly decentralized process, and the strong autonomy of local actors, local social forums share structural characteristics, and the expression “social forum” is associated with ways of doing things that limit the variety of local social forum initiatives: organizers share a common intentionality; the mode of operation of local social forum process and event belong to the same political culture and translate into the same practices; and the outputs of these gatherings are similar in terms of the building of ties. Overall, local social forums are used as tactical and cultural collective action repertoires by actors, redefining the boundaries of social resistance and its practices.

Continuity and Incentive Compatibility in Cardinal Voting Mechanisms

We show that every cardinal incentive compatible voting mechanism satisfying a continuity condition, must be ordinal. Our results apply to many standard models in mechanism design without transfers, including the standard voting models with any domain restrictions.

Lifecycle Value Framework for Tactical Aircraft Product Development

Due to a dramatic reduction in defense procurement, the benchmark for developing new defense systems today is performance at an affordable cost. In an attempt to encircle a more holistic perspective of value, lifecycle value has evolved as a concept within the Lean Aerospace Initiative, LAI. The implication of this is development of products incorporating lifecycle and long-term focus instead of a shortsighted cost cutting focus. The interest to reduce total cost of ownership while still improving performance, availability, and sustainability, other dimensions taken into account within the lifecycle value approach, falls well within this context. Several factors prevent enterprises from having a holistic perspective during product development. Some important aspects are increased complexity of the products and significant technological uncertainty. The combination of complexity in system design and the limits of individual human comprehension typically prevent a best value solution to be envisioned. The purpose of this research was to examine relative contributions in product development and determine factors that significantly promote abilities to consider and achieve lifecycle value. This paper contributes a maturity matrix based on important practices and lessons learned through extensive interview based case studies of three tactical aircraft programs, including experiences from more than 100 interviews.

On exiting after voting

We consider the problem of a society whose members must choose from a finite set of alternatives. After knowing the chosen alternative, members may reconsider their membership in the society by either staying or exiting. In turn, and as a consequence of the exit of some of its members, other members might now find undersirable to belong to the society as well. We analyze the voting behavior of members who take into account the effect of their votes not only on the chosen alternative, but also on the final composition of the society

An Extension to the Tactical Planning Model for a Job Shop: Continuous-Time Control

We develop an extension to the tactical planning model (TPM) for a job shop by the third author. The TPM is a discrete-time model in which all transitions occur at the start of each time period. The time period must be defined appropriately in order for the model to be meaningful. Each period must be short enough so that a job is unlikely to travel through more than one station in one period. At the same time, the time period needs to be long enough to justify the assumptions of continuous workflow and Markovian job movements. We build an extension to the TPM that overcomes this restriction of period sizing by permitting production control over shorter time intervals. We achieve this by deriving a continuous-time linear control rule for a single station. We then determine the first two moments of the production level and queue length for the workstation.