PT  - JOURNAL ARTICLE
AU  - Ronald Lagnado
AU  - Nassim Nicholas Taleb
TI  - Pension Funds Should Never Rely on Correlation
AID  - 10.3905/jai.2022.1.157
DP  - 2022 Feb 04
TA  - The Journal of Alternative Investments
PG  - jai.2022.1.157
4099  - https://pm-research.com/content/early/2022/02/04/jai.2022.1.157.short
4100  - https://pm-research.com/content/early/2022/02/04/jai.2022.1.157.full
AB  - The central decision for a pension fund is the allocation between stocks and bonds. For intellectual backup in making this decision, many rely on metrics and methods from Modern Portfolio Theory (MPT). We show how, historically, such an “optimal” portfolio is in effect the least optimal one, as it fails to protect against tail risk and under-allocates to the high-returning asset class. MPT fails in both risk control and real-world investment optimization.