Adaptive Asset Allocation (AAA) – A Paradigm Shift
We believe Modern Portfolio Theory (MPT) is not wrong, it is mainly incomplete. Based on its development history, it has been designed with a limited – rational – conception of the human being, its behavior and decision making processes. Humans are not purely rational beings, they are rather emotional, which strongly influences their decision making. This presents a challenge to traditional – MPT based – finance theory and is a true paradigm shift.
The new world order in investing is a dynamic one. Markets and participants are driven by evolutionary forces such as competition, mutation, reproduction and natural selection. As a result markets are dynamic and context dependent. Convergence to an equilibrium is neither guaranteed nor predictable, behavioral biases abound.
This presents fertile ground for active and especially quantitative asset managers – SAR has developed its own proprietary Adaptive Asset Allocation (AAA) approach and is intensively working this ground to achieve the best results for its investors.
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