Dynamic Portfolio Theory and Management

By Richard E. Oberuc

Finally, a book that provides a fully-explained procedure for determining when, why and how much to change your asset allocations as market conditions change. This book goes well beyond the concepts fostered by Harry Markowitz in his invention of Modern Portfolio Theory (MPT). The basic difficulty with MPT has been the generation of the required estimates of future performance and risk. Unfortunately most users of MPT use simple trend-following procedures to predict the needed future performance statistics. This has led to less than satisfying results since trends seldom persist. Dynamic Portfolio Theory and Management sidesteps the requirement to specify these vexing estimates by assuming past and future performance is controlled by a set of time-varying macroeconomic and market factors.

Finding the most effective set of influential factors is an important key. By applying the research of scores of leading market authorities, Oberuc develops a hierarchical consensus regarding factors such as dividend yields, unemployment, capacity utilization and a host of other factors considered useful in determining future investment performance. The evaluation of these most important factors is independently provided for stocks, bonds, interest rates and hedge funds.

The book shows how to integrate the most effective of these factors into a brand new portfolio optimization model devised by the author. The model structure is completely detailed in the book in a revolutionary system of equations called DynaPorte. The DynaPorte system finds optimal asset allocation control equations that respond to changes in the influential factors in order to target the highest possible returns or to minimize risk. The effects of practical considerations such as allocation limits, transaction costs and dynamic leveraging are specifically considered.

The book documents how an investor with access to the provided procedures could have easily avoided the losses stemming from the 2000 stock market downturn. The procedures would have shifted allocations to other investments offering reasonable and safe investment growth. ll that was needed was a fresh look at the factors that influence markets and a revolutionary methodology for altering investment portfolios.


Copyright 2007 Burlington Hall Asset Management, Inc. All rights reserved.

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