Historical returns

As discussed previously, if you cannot tolerate your investment portfolio declining by 30% percent in one year, you do not want to have an all-stock portfolio (because the largest historical one year decline was 43.3%). But how should you allocate your resources Suppose that you can tolerate a 20% decline or a 10% decline Based on historical returns and using large stocks and long-term bonds as major asset classes to design a portfolio, you should not have more than 40% stocks in your portfolio ifyou cannot tolerate agreater than 20%... 

A common mistake committed by naive users of MV analysis is to use recent returns, risk, and correlation as predictors of the future. PortfoUos produced using such linear extrapolation methods normally exhibit poor performance. Table 2 shows historical returns and risk for various asset classes over the last decade. A variety of extraneous market developments, shocks, and one-time events produced these results. Rest assured that future time paths wiU not closely resemble those of the 1990s. For this reason, while one cannot ignore history, extending past performance into the future is a poor technique. 

The variance-covariance model approach extracts volatility information from historical returns and builds a model intended to predict divergence in performance. For this type of model, the underlying data are typically a time series of yields, spreads or returns. The model relies heavily on historical data and assumes both stable correlations and a normal distribution of returns. 

A more widely used approach first normalizes all historical returns with respect to the corresponding historical volatilities and then calculates... 

However, both methods suffer from the same assumption whether you utilize a historical return distribution (historical simulation) or choose to model an arbitrary distribution (Monte Carlo), the dependence on such a distribution prevailing in the future can be dangerous, if not disastrous. (WorldCom, Enron, need we go on ) The resolution lies in analytics that make no such assumptions, and are flexible in modelling various scenarios or outcomes. 

In order to answer the question what share should be taken up by corporate bonds in a portfolio, ex post simulations were run. The Markowitz approach of portfolio optimization is based on using expected returns. Since the question of determining the optimal fixed income portfolio is to be answered against the background of historical data, the return and variance/covariance estimators are replaced by their historical return means and variances/covariances respectively. These historical data are computed congruently to the relevant investment horizon. For a 3-year investment horizon, the return means and variances/covariances of assets are computed on the basis of 36 monthly returns. The same is, in analogy, done for a 5-year investment horizon on the basis of 60 monthly returns. Investment horizons of three, five, and 10 years are analyzed here. For the investment horizon of, for example, five years, the monthly data in the time window from February 1980 to January 1985 are used. 

Fnd-of-Tife Items. The end-of-life items are working capital return, sale of land, and salvage. If there is a capital gain on land sale or salvage, above the remaining tax-basis asset value, then this gain is treated as taxable ordinary income ia the United States historically, capital gains were taxed separately at a... 

To return to a more historical development the mercuric acetate oxidation of substituted piperidines (77) should be discussed next. This study established that the normal order of hydrogen removal from the aW-carbon is tertiary —C—H > secondary —C—H > primary —C—H, an observation mentioned earlier in this section. The effect of substitution variations in the piperidine series can be summarized as follow s l-mcthyl-2,6-dialkyl and 1-methyl-2,2,6-trialkyl piperidines, as model systems, are oxidized to the corresponding enamines the 1,2-dialkyl and l-methyl-2,5-dialkyl piperidines are oxidized preferentially at the tertiary a-carbon the 1-methyl-2,3-dialkyl piperidines gave not only the enamines formed by oxidation at the tertiary a-carbon but also hydroxylated enamines as found for 1-methyl-decahydroquinoline (48) (62) l-methyl-2,2,6,6-tctraalkyl piperidines and piperidine are resistant to oxidation by aqueous mercuric acetate and... 

Electric utilities have historically been franchise monopolies, vertically integi ated from power production through transmission, distribution, and customer service with no competition from other electric utilities. However, in many parts of the countiy, electric and gas utilities do compete. Rates charged by these utilities were determined in a regulatoiy proceeding Electric utilities proposed rates that compensated them for their expenses and allowed them to earn a reasonable return state regulatoiy commissions reviewed and approved the proposals. 

The precipitation record shows a mild decrease in rainfall for May, June, and July over the last 20 years of record. However, runoff decreased to less than half the historical average for May and June over the same period, and reduced runoff persisted into December, despite a return to normal or above normal precipitation levels over the latter half of the year. 

Because of these precursor modification reactions, the process chemistry of chelate processes is as complex, or more so, than that involved in sol-gel processes.78 However, it is typical for chelate processes that some control of process chemistry is sacrificed in return for more expedient solution preparation. For example, the hour-long (or longer) reflux processes that have been historically used in 2-methoxyethanol based sol-gel processing of ferroelectric films are not used. Rather, the entire solution preparation procedure is generally completed within one hour, with only the initial phase of the procedure being carried out under dry box and inert atmosphere conditions. Once the chelation reaction(s) has occurred, the hydrolysis sensitivity of the precursor solution is reduced to the point where the remaining process chemistry may be carried out under ambient conditions.46... 

However unfortunate, drilling personnel have been historically directly connected with major incidents within the petroleum industry on numerous occasions and the impression, consciously or unconsciously still remains. On the other hand, it is very rare or non-existent that a loss prevention professional is promoted to the ranks of senior management, even though they may have been keenly conscientious in maintaining a high economic return to the company by the prevention of catastrophic accidents. 

Chapter 3 treats the most common type of objective function, the cost or revenue function. Historically, the majority of optimization applications have involved trade-offs between capital costs and operating costs. The nature of the trade-off depends on a number of assumptions such as the desired rate of return on investment, service life, depreciation method, and so on. While an objective function based on net present value is preferred for the purposes of optimization, discounted cash flow based on spreadsheet analysis can be employed as well. 

Figure 16.14 shows the type model of Membership Manager. Our architecture will use the Member info field to store encoded historical statistics about the member how many videos rented to date, how many returned overdue, and how many reservations not picked up. 

The historical, social, and intellectual elements of disciplinary identity for physical chemistry were well laid out in Europe, Great Britain, and the United States by the 1920s, and a new hybrid discipline of physical organic chemistry emerged in turn. However, more so than in some other scientific fields at this time, physical chemists often were to experience varieties of identity crisis. Were they physicists, or were they chemists What was the difference between physics and chemistry This is a question to which we return in the concluding chapters of this book. 

---