Question

Technological changes have decreased the cost and increased the speed of information dissemination in security market.
As the Technology is agile and keep on evolving day by day so, the impact of it may affect the security price. Technology has made possible the fastest means of the communication and data dissemination in all the fields. In order to know the price of the security then open your connection start surfing for it, you will have the value for your searched security.
As in the field of finance the information dissemination is very important and it cost in terms of some values. Due to the technology, the speedup of the process is there. Online processes are more clear and concise.
It is the matter of one’s suspect that firms following the traditional approach to invest management would find it increasingly difficult to identify and acquire under-priced security in this environment. This is so because the traditional approach is not automated one so humans are involved so there might be error in valuing the security manually. The traditional approach has evolved with the effect of technology. As in the growing world one is paying for the worth of the services of the technology with the security market investment prices so he/ she will be more concerned about the investment. Under-priced security has not generating much profit or wealth creation for the customer’s investment. There is less security in the world of technology but it is far more less in the traditional approach. The asymmetry of the information dissemination is there

Evaluate the strength and weaknesses of each of the two approaches presented
above. Recommend and justify an alternative process [or asset allocation that
draws from the strength of each approach and corrects their weaknesses

Answer 1

The two approaches presented in the case above are :

1. Traditional Approach:

Strengths: The Traditional approach has humans directly involved in the asset allocation and investment process. Thus, leading to first hand reliable classification and analysis of the same without any external interference or manipulations.

Weakness: The most major short-coming of this approach is that it becomes extremely difficult to identify and acquire under-priced security, thus making it increasingly diffiult to earn higher returns on the investments made. Also, as humans are involved manually, there are higher probabilities of human errors in valuing the securities manually.

2. Modern (Technological) Approach:

Strengths: The biggest advantage of the modern approach is the acquisition of security prices at a higher speed and reduced cost. Also, as human intervention is the least in this method, the proabilities of manual errors is almost nil.

Weakness: As technology is used for disseminating information in this technique, there are chances that the information may be accessed by unscruplous means and thus the securiy of data may be compromised.

Alternative approach: The method of asset allocation that could be suggested for the above scenario would be "Integrated Asset Allocation" process. This technique considers both your economic expectations as well as the risk in establishing the asset mix. So basically, you could use technology to transfer information as well as identify the underpriced security & Manual intervention could be used for pragmatic asset allocation as per one's expectations of risk and rewards.