Finance's Wrong Turns

A New Foundation for Financial Markets, Asset Management, and Social Science

Economic and Financial Theory Has Been in Error for More than 60 Years...

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There is a foundational crisis in professional asset management. Investors are increasingly adopting minimal cost no-information index and factor fund strategies. This is because little if any evidence exists for superior cost- and risk-adjusted professional asset management performance of over investment-relevant horizons. The text argues that economic and financial theory have been in error for more than sixty years and is the cause of ineffective investment technology. Social science is preference theory not physics. Finance’s Wrong Turns offers a unique philosophical perspective of modern finance and financial markets. Drawing on contemporary sociological principles, and his decades of experience as asset manager and institutional strategist, Michaud invites analysts, advisors, and institutional portfolio managers to consider a new framework for improved asset management.

In his book, Dr. Michaud will:

· Trace the major historical developments of institutional asset management practice and its limitations.

· Narrate professional asset management practice.

· Describe the key contemporary principles of human cognition and rational decision making.

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Keywords: Professional Asset Management, Modern Finance, Portfolio Optimality, Preference Theory, Investment Technology, Portfolio Simulation, A New Efficient Frontier, Agent Based Models, Investor Group Behavior.

There is a foundational crisis in financial theory and professional investment practice that cannot be ignored any longer. Investment industry professionals must acknowledge there is little, if any, credible evidence that active investment strategies and traditional institutional quantitative technologies are able to provide superior risk-adjusted, cost-adjusted returns over relevant time horizons.

Dr. Richard Michaud

A 50 Year Legacy of Research on
Institutional Asset Management in Practice

For over 50 years, Dr. Michaud has traced the major historical developments and limitations of institutional asset management in both theory and in practice. From Markowitz and the birth of modern finance, to CAPM theory and emergence of institutional quantitative asset management, Dr. Michaud's scholarship has focused on exposing the limitations of ineffective financial engineering tools and strategies, while promoting innovations in statistical methodologies and financial market theory that have furthered the development of asset management in practice.

Dr. Richard Michaud

Richard O. Michaud, is President, Founder, and Chief Executive Officer of New Frontier Advisors. He earned a PhD in Mathematics and Statistics from Boston University, USA and has taught investment management at Columbia University, USA. His research and consulting has focused on asset allocation, investment strategies, global investment management, optimization, stock valuation, and trading costs. He is the author of Efficient Asset Management (with Robert Michaud), Investment Styles, Market Anomalies, and Global Stock Selection, and over 60 published journal articles, manuscripts, and white papers. He is co-holder of four U.S. patents in portfolio optimization and asset management, a Graham and Dodd Scroll winner for his work on optimization, a former editorial board member of the Financial Analysts Journal, associate editor of the Journal of Investment Management, and former director of the “Q” Group.

Dr. Michaud's Reach of Research

Dr. Richard Michaud’s fifty-year legacy of published research and professional presentations on topics ranging from active management, to dividend discount models, to portfolio optimization in practice have helped investors and advisors worldwide understand the history and evolution of quantitative asset management - all while helping them make better investment decisions and avoid the many pitfalls of the industry today.

We invite you to explore Dr. Michaud's contributions to the study of financial engineering below.

For Dr. Michaud's full inventory of academic and research articles, as well as information on how his scholarship continues to be used in modern portfolio theory research today, visit Dr. Michaud's research pages at www.ssrn.com and www.researchgate.net.