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Thomas Idzorek,CFA®

Chief Investment Officer, Morningstar Investment Management LLC

General Session 5: The Popularity Asset Pricing Model, ESG, and Personalized Portfolios

The textbook asset pricing model, the Capital Asset Pricing Model or CAPM, is flawed leading to numerous anomalies, such as the value and size premiums.  In a not well-known academic article, Fama and French identified two missing ingredients from the CAPM but stopped short of producing a new model.  This session introduces a new model, the Popularity Asset Pricing Model or PAPM, that incorporates the two missing ingredients as well as elements of classical and behavioral finance.  It is an ideal model for making sense of one of the most polarizing investing topics of the day:  ESG.  The PAPM leads to nearly the opposite conclusions of the CAPM.  Most notably, investors should own personalized portfolios and the PAPM provides an extension of Markowitz mean-variance optimization for creating personalized portfolios based on a rigorous asset pricing theory.


Thomas Idzorek is head of investment methodology and economic research for Morningstar. He currently serves as a member of Morningstar’s 401(k) committee, Morningstar’s Strategy Council, Morningstar’s Research Council, the board of directors for Morningstar Investment Management Europe, the Global Investment Policy Committee of Morningstar Investment Management, and on the editorial boards of Morningstar magazine and the CFA Institute Financial Analysts Journal (FAJ). Mr. Idzorek served as president of Morningstar’s Investment Management group from 2012 to 2015, where he oversaw the firm’s global investment management business, Morningstar’s broker–dealer (Morningstar Investment Services), consulting services, retirement solutions, and index businesses. Additionally, he has served as president of Ibbotson Associates, president of Morningstar Associates, board member/responsible officer for a number of the Investment Management group’s subsidiaries, global chief investment officer for the Investment Management group, chief investment officer for Ibbotson Associates, and director of research and product development for Ibbotson. Before joining Ibbotson (which Morningstar acquired in 2006), Mr. Idzorek was a senior quantitative researcher for Zephyr Associates. He has written numerous articles for academic and industry journals and collaborated on papers selected by the FAJ for Graham and Dodd Scroll Awards. He is an expert on multi-asset class strategic asset allocation, the Black-Litterman model, target-date funds, retirement-income solutions, fund-of-funds optimization, risk budgeting, and performance analysis.