Kritzman’s Corner2018-06-06T16:25:46-04:00
Mark Kritzman

Mark Kritzman is a Founding Partner of Windham Labs, Windham Capital Management, State Street Associates, and teaches a graduate finance course at the Massachusetts Institute of Technology. He has published seven books, including A Practitioner’s Guide to Asset Allocation and The Portable Financial Analyst, and has received several prestigious awards. His innovative research, extensive publications, and investment acumen make him one of the foremost figures in his field.

Through this section of our website, we aim to deliver insight into the vast research Mark has produced. Kritzman’s Corner will serve as a educational and inspirational resource for those looking to expand their knowledge of quantitative finance.

Risk in the Real World

Risk in the Real World The Challenge G.H. Hardy, the legendary mathematician, once claimed that his greatest disappointment in life was learning that someone had discovered an application for one of his theorems.  Although Hardy’s disinterest in practical matters was a bit extreme, it sometimes seems that scholars view the real world as an uninteresting, special case of their models.  This disinterest in real world complexity, unfortunately, often brings unpleasant consequences.  In this chapter, we address two simplifications about risk that often lead investors to underestimate their portfolios’ exposure to loss.  First, investors typically measure risk as the probability of a given loss, or the amount that can be lost with a given probability, at the end of their investment horizon, ignoring what might occur along the way.  [...]

April 15th, 2019|

Optimal Rebalancing: New Approaches, New Applications

OPTIMAL REBALANCING WITH THE MARKOWITZ VAN DIJK HEURISTIC Institutional investors usually employ mean–variance analysis to determine optimal portfolio weights. Almost immediately upon implementation, however, the portfolio’s weights become sub-optimal as changes in asset prices cause the portfolio to drift away from the optimal targets. In an idealized world (without transaction costs) investors would rebalance continually to the optimal weights. In the presence of transaction costs, investors must trade-off the cost of suboptimality with the cost of restoring the optimal weights. Most investors employ heuristics to manage this trade off. Some implement calendar-based rebalancing policies, in which they rebalance each month, quarter, or year. Others impose tolerance bands in which they rebalance when the exposure to any asset class drifts more than two percentage points from its target, for example. [...]

January 30th, 2019|

Event Studies

An event study is used to measure the relationship between an event that affects securities and the return of those securities. For example, events such as a regulatory change or market shock may affect many securities simultaneously. On the other hand, events such as a policy change or stock split may only impact certain securities. Event studies are often used to test the “efficient market hypothesis.” The efficient market hypothesis is a theory based on research put forward by Eugene Fama, and states that asset prices fully reflect all information available. Abnormal returns that persist after an event occurs, or abnormal returns that are associated with an anticipated event contradict the efficient market hypothesis. Event studies are also valuable in gauging the significance of an event. How to [...]

September 10th, 2018|

Windham Capital Management Celebrates Its 30th Anniversary

On today, July 23rd, 2018, we are celebrating the 30th anniversary of our parent company, Windham Capital Management. Throughout its history, Windham has focused on risk-based research. Its principals are well known and widely respected throughout the world for their contributions to the finance literature, their leadership roles in prestigious research organizations, their affiliations with distinguished academic institutions, and their membership in numerous advisory and editorial boards. Today, Windham has three core businesses: its investment management business, which comprises its asset allocation and risk premia products, Windham Labs, and its investment advisory business. Windham remains fully committed to continuing its legacy of advancing the science and practice of investment management, and especially to delivering the best products and highest quality service to its valued clients. [...]

July 23rd, 2018|

Mark Kritzman Gives Convocation Speech to MIT Graduates

MIT Masters of Finance Graduation Mark Kritzman June 7, 2018 Good morning and congratulations.  As many of you know, I’m not used to speaking without a PowerPoint presentation, but surprisingly Heidi didn’t show much enthusiasm for that idea.  When I mentioned my concern to my wife, she said: “Don’t worry.  You’re good at giving eulogies.”  So if what I say sounds a bit sad, you’ll understand why. Of course, I’m joking.  This is such a happy occasion.  Happy for you students because you are about to graduate from the world’s best masters of finance program.  Happy for you parents because your children are about to embark upon what almost certainly will be exceptionally successful careers.  And happy for MIT because your coming success [...]

June 8th, 2018|