Journal of Wealth Management

Can we use VIX beta to beat a volatile market?

2024-09-26T17:42:12+00:00

This paper examines the relationship between daily VIX and abnormal stock return in the 2020 Covid crisis. We find that adding a VIX factor to benchmark models can significantly reduce the probability of abnormal stock return, and the VIX beta has an evident impact on abnormal return probability. In addition, stock portfolios with different VIX beta deciles demonstrate distinct patterns in abnormal portfolio returns. We propose a portfolio-switching strategy that can outperform the market significantly and statistically.

Facilitating Portfolio Construction using Ex-ante Information Ratios and Maximum Sharpe Ratios

2024-09-26T15:13:20+00:00

Investors should consider Sharpe ratios and correlations together when adding a new fund to their existing portfolio. The ex-ante information ratio (also known as the appraisal ratio) is effective in informing this decision. However, a maximum Sharpe ratio calculation is equally effective in this decision while providing the additional benefit of producing optimal portfolio weights for the combined portfolio. In this paper, we supply simple approaches to compute these measures to help facilitate portfolio construction.

Portfolio Optimization Tools in Excel

2024-11-22T14:47:24+00:00

The calculus and matrix algebra associated with finding the optimal portfolio weights for a set of securities is tedious. However, Excel tools make the computations simple, with minimal programming needed to arrive at optimal portfolio weights for securities in a portfolio. We provide this Excel template and techniques for acquiring optimal weights, which is useful for personal and institutional investors alike.

Stochastic Dynamic Wealth Allocation: A Behaviourally Adaptive Strategy for Long-Term Financial Security

2025-02-26T07:32:58+00:00

Optimal wealth allocation is a key determinant of financial stability in retirement, yet retirees must navigate complex trade-offs between consumption, risky and risk-free investments, and life insurance while managing long-term financial security and bequest aspirations. Traditional static allocation models fail to capture the dynamic interplay of investment risks, labor income uncertainty, and behavioral financial factors. This paper introduces a stochastic, behaviorally adaptive optimization framework that integrates job market fluctuations, volatility clustering, and fat-tailed market crashes to provide a more realistic and resilient wealth allocation strategy. Unlike conventional models, our approach dynamically adjusts risk aversion based on financial experiences, incorporating panic selling tendencies and loss thresholds to enhance decision-making under uncertainty. Monte Carlo simulations combined with dynamic programming enable an optimal balance between risk exposure, income volatility, and financial objectives, ensuring retirees can adapt their portfolios to evolving market conditions. By explicitly incorporating loss aversion, life-cycle financial constraints, and strategic risk management, this framework enhances the probability of sustaining wealth throughout retirement while mitigating the impact of economic downturns. The results confirm that the optimal allocation strategy transitions from conservative investments in early years to riskier assets as financial security strengthens, reinforcing its practical applicability for long-term financial planning.

Does the Ukraine Financial Markets offer Portfolio Diversification for the Investors of G7 Countries? - Ukraine's re-establishment perspective

2025-03-01T00:46:01+00:00

This study investigates the integration between the Ukrainian financial market and G7 countries' financial market markets and evaluates the benefits of portfolio diversification for the investors of G7 countries. By applying data from February 25, 2022, to December 31, 2024, the study calculates the correlation and dynamic connectedness of Ukraine's equity and bond markets with the key stock indices from Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The study's finding suggests a weak to moderate correlation between Ukraine's financial market and the markets of G7 countries. Therefore, a significant diversification potential for investors in G7 economies is available if they invest in Ukraine's financial markets. Furthermore, portfolio optimisation strategies—equally weighted portfolio (EWP), minimum variance portfolio (MVP), and maximum Sharpe portfolio (MSP)—demonstrate substantial risk-adjusted return improvements for investors diversifying into Ukrainian markets. However, the maximum Sharpe portfolio (MSP) provides the maximum benefit of diversification to G7 countries' investors. These insights contribute to the literature on international portfolio diversification by showcasing Ukraine as an emerging investment destination with significant risk mitigation and return potential.

My Personal Journey: the Labyrinth of Wealth, Philanthropy and Family Dynamics

2025-06-19T13:41:42+00:00

Capital markets can destroy wealth. Luckily in my case, I rode the wondrous wave of abnormally
high equity returns. The cash from selling my company was my nest egg. Today the assets are
the same as when I retired – in spite of my not insignificant withdrawals annually. The miracle
of compounding allowed me to travel, take the entire family on grand vacations, and establish a
foundation. This is my personal journey through the labyrinth of wealth, philanthropy, and family dynamics.