Seminar 217, Risk Management: Social Finance and the Postmodern Portfolio: Theory and Practice

Seminar | September 12 | 11 a.m.-1 p.m. | 639 Evans Hall

 Speaker: Jeremy Evnine, Evnine & Associates

 Center for Risk Management Research

We formulate the portfolio construction problem as a mean/variance problem which includes a linear term representing an investor’s preference for expected “social return”, in addition to her expected “financial return” of the classical theory. By making various assumptions, we are able to exploit the heterogeneous expectations version of the CAPM to derive an equilibrium model which is an extension of the standard Capital Asset Pricing Model. Among other things, the model implies that, in equilibrium, assets with higher expected social return that is valued by investors will have, ceteris paribus, lower financial expected return. We also present guidelines for practical implementation of this approach to portfolio management.