LQG Seminars

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Asset Allocation with Crypto: Application of Preferences for Positive Skewness

Seminar by Andrew Ang

12th July 2022 – In-Person and On-Line – Hybrid!

The LQG is very grateful to The London Stock Exchange Group – LSEG – for hosting this in-person and on-line hybrid LQG.

In this seminar Andrew Ang will discuss Bitcoin (BTC) returns which exhibit pronounced positive skewness with a third central moment of approximately 150% per year. They are well characterized by a mixture of Normals distribution with one “normal” regime and a small probability of a “bliss” regime where the price appreciation is more than 100 times at the annual horizon. The large right-tail skew induces investors with preferences for positive skewness to add significant BTC holdings to equity-bond portfolios. Even when BTC is forecast to lose half of its value in the normal regime, investors with power utility optimally add 3% allocations to BTC when the probability of the bliss regime is around 1%. Cumulative Prospect Theory investors are even more sensitive to positive skewness and hold BTC allocations of around 3% when the probability of the bliss regime is 0.0006 and the mean of BTC in the normal regime corresponds to a loss of 90%.

 

Andrew Ang

Managing Director – BlackRock – Head of Factors, Sustainable and Solutions (FS-Squared)

Andrew Ang, PhD, Managing Director, is Head of Factors, Sustainable and Solutions (FS-Squared). He also serves as Senior Advisor to BlackRock Retirement Solutions. As part of BlackRock Systematic, FS-squared is responsible for proprietary factor investing, delivering cutting-edge sustainable alpha, ESG outcomes and product innovation.
Dr. Ang is a well-known financial economist specializing in quantitative investing. Author of over 100 publications, Dr. Ang has published on sustainable investing, equities, fixed income, optimal asset allocation, and alternative assets. His seminal papers include research in the minimum volatility factor, incorporating macro factors into bond pricing models and factor allocation. His book, Asset Management: A Systematic Approach to Factor Investing, has been translated into Chinese Japanese, Korean and Spanish. His recent research focuses on generating alpha with ESG data and net zero multi-asset investing.
Dr. Ang has been granted patents, and he has won several industry prizes and grants, including the Harry Markowitz award, the Bernstein Fabozzi/Jacobs Levy award, and prizes and grants from the Q Group, INQUIRE, Netspar, and the National Science Foundation. According to RePEc/IDEAS, the largest bibliographic database in the field of economics, Dr. Ang is rated in the top 0.1% of world-wide economists by citations, downloads, and views.
Before joining BlackRock, Dr. Ang was the Ann F. Kaplan Professor of Business at Columbia Business School. He was previously Chair of the Finance and Economics Division and a Faculty Research Fellow of the National Bureau of Economic Research. As a professor, Dr. Ang worked with several large institutional managers as an advisor. His work with industry was recognized by aiCIO naming him one of the top 10 most influential academics in the institutional investing world.
Dr. Ang earned a BEc(Hons) from Macquarie University, and a PhD in finance and MS in statistics from Stanford University. Dr. Ang used to be a Fellow of the Institute of Actuaries of Australia.