Participants in the PMP are divided into three groups, each focusing on a distinct investment framework, explored theoretically and implemented practically.
Financial markets have inherent dynamics (momentum, speculative bubbles, and crashes), which often lead to market anomalies. These market anomalies ultimately lead to a waste of resources. The behavioral finance approach seeks to benefit from and ultimately to eliminate such market anomalies. We expect this approach to have a great deal of potential, pushing our returns above those of passive indices.
The goal of this investment approach is to systematically harvest risk premia and lock-in returns linked to cash flow yield for all asset classes. Traditionally the focus has been on emerging market currencies and fixed income.
In the quantitative approach, investment decisions are made using strategies developed from an analysis of empirical data. Using statistical methods, potential investment strategies for a set of assets are formulated in detail and their performance over a long period is assessed. An important aspect of quantitative methods is to guarantee the consistent implementation of risk control and investment rules.
Investment strategies are implemented within a target set of asset allocation weights. All groups are also required to set up an adequate risk management process as well as develop a suitable documentation and controlling process within the predetermined framework.