CHAPTER 27 Investments The Theory of Active Portfolio Management Slides by Richard D. Johnson Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights.

Slides:

Advertisements

Similar presentations

Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 10 Information and Financial Market Efficiency.

Advertisements

Asset Management Lecture 9. Outline for today Black-litterman model and sensitivity in confidence Treynor-Black vs Black-Litterman Value of active management.

6 Efficient Diversification Bodie, Kane, and Marcus

Performance Evaluation and Active Portfolio Management

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Portfolio Performance Evaluation 18 Bodie, Kane, and Marcus.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Project Analysis and Evaluation Chapter Eleven.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Credit and Inventory Management Chapter Twenty-One.

Asset Management Lecture 7. Outline for today Adjustments with the precision of alpha Organization chart of the portfolio management The Black-Litterman.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Working with Financial Statements Chapter Three.

4. Economic Effficiency Efficiency Equity Market system Social cost – External cost Public goods – Private cost.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Financial Leverage and Capital Structure Policy Chapter Seventeen.

Asset Management Lecture 6. Outline for today Treynor Black Model M2 measure of performance Sensitivity to return assumption Tracking error.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Raising Capital Chapter Sixteen.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Options and Corporate Finance Chapter Fourteen.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Introduction to Valuation: The Time Value of Money Chapter Five.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Net Present Value and Other Investment Criteria Chapter Nine.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Short-Term Finance and Planning Chapter Nineteen.

7-1 McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. CHAPTER 7 Capital Asset Pricing Model.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Discounted Cash Flow Valuation Chapter Six.

Asset Management Lecture 22. Review class Asset management process Planning with the client Investor objectives, constraints and preferences Execution.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Determining the Target Cash Balance Chapter Twenty A.

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved The Theory of Active Portfolio Management Chapter 27.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Long-Term Financial Planning and Growth Chapter Four.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Interest Rates and Bond Valuation Chapter Seven.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Risk Management: An Introduction to Financial Engineering Chapter Twenty- Three.

 The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 28-1 The Theory of Active Portfolio Management.

Copyright © The McGraw-Hill Companies, Inc. Permission required for reproduction or display. Chapter 4 Image Slides.

Asset Management Lecture 11.

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Capital Asset Pricing and Arbitrage Pricing Theory CHAPTER 7.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Option Valuation Chapter Twenty- Four.

Corporate Financing and the Six Lessons of Market Efficiency

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Return, Risk, and the Security Market Line Chapter Thirteen.

Copyright © The McGraw-Hill Companies, Inc. Permission required for reproduction or display. Chapter 2 Image Slides.

Portfolio Performance Evaluation

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Capital Asset Pricing and Arbitrage Pricing Theory 7 Bodie,

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Capital Asset Pricing and Arbitrage Pricing Theory CHAPTER 7.

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 24 Portfolio Performance Evaluation.

CHAPTER 13 Investments Empirical Evidence on Security Returns Slides by Richard D. Johnson Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights.

Investments, 8 th edition Bodie, Kane and Marcus Slides by Susan Hine McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights.

Fin 2802: Investments Spring, 2010 Dragon Tang

INVESTMENTS | BODIE, KANE, MARCUS Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 27 The Theory of Active.

Portfolio Performance Evaluation

CHAPTER 17 Investments Macroeconomic and Industry Analysis Slides by Richard D. Johnson Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights.

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Portfolio risk and return measurement Module 5.2.

McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Efficient Diversification CHAPTER 6.

Chapter 10 Capital Markets and the Pricing of Risk.

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Performance Evaluation and Active Portfolio Management CHAPTER 18.

CHAPTER 16 Investments Managing Bond Portfolios Slides by Richard D. Johnson Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin.

INVESTMENTS | BODIE, KANE, MARCUS Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 8 Index Models.

Copyright © The McGraw-Hill Companies, Inc. Permission required for reproduction or display. Chapter 16 Image Slides.

McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Capital Asset Pricing and Arbitrage Pricing Theory CHAPTER 7.

Investments, 8 th edition Bodie, Kane and Marcus Slides by Susan Hine McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights.

McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Capital Asset Pricing and Arbitrage Pricing Theory CHAPTER 7.

1 Chapter 10 Estimating Risk and Return McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Performance Evaluation and Active Portfolio Management CHAPTER 17.

Copyright © 2002 Pearson Education, Inc. Slide 10-1.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Example 1-Ad A.

Lecture 16 Portfolio Weights. determine market capitalization value-weighting equal-weighting mean-variance optimization capital asset pricing model market.

8-1 Risk Analysis in Investment Decisions CHAPTER 8 McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Investments, 8 th edition Bodie, Kane and Marcus Slides by Susan Hine McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights.

EQUITY-PORTFOLIO MANAGEMENT

Behavioral Finance and Technical Analysis

International Diversification

CHAPTER 21 Option Valuation Investments Cover image Slides by

Risk Aversion and Capital Allocation to Risky Assets

The Theory of Active Portfolio Management

CHAPTER 8 Index Models Investments Cover image Slides by

The Theory of Active Portfolio Management

Risk Aversion and Capital Allocation to Risky Assets

Learning About Return and Risk from the Historical Record

Presentation transcript:

CHAPTER 27 Investments The Theory of Active Portfolio Management Slides by Richard D. Johnson Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Cover image

27- 2 Cover image Overview  Treynor-Black model –Optimization using analysts’ forecasts of superior performance –Adjusting model for tracking error –Adjusting model for analyst forecast error  Black-Litterman model

27- 3 Cover image Table 27.1 Construction and Properties of the Optimal Risky Portfolio (properties 1-5)

27- 4 Cover image Table 27.1 Construction and Properties of the Optimal Risky Portfolio (properties 6-11)

27- 5 Cover image Table 27.2 Stock Prices and Analysts’ Target Prices for June 1, 2006

27- 6 Cover image Figure 27.1 Rates of Return on the S&P 500 (GSPC) and the Six Stocks, June 2005 – May 2006

27- 7 Cover image Table 27.3 The Optimal Risky Portfolio with the Analysts’ New Forecasts

27- 8 Cover image Table 27.4 The Optimal Risk Portfolio with Constraint on the Active Portfolio (WA < 1)

27- 9 Cover image Figure 27.2 Reduced Efficiency when Benchmark Is Lowered

Cover image Table 27.5 The Optimal Risky Portfolio with the Analysts’ New Forecasts (benchmark risk constrained to 3.85%)

Cover image Figure 27.3 Histogram of the Alpha Forecast

Cover image Figure 27.4 Organizational Chart for Portfolio Management

Cover image Steps in the Black-Litterman Model  Step 1: Estimate the covariance matrix from historical data  Step 2: Determine a baseline forecast  Step 3: Integrating the manager’s private views  Step 4: Developing revised (posterior) expectations  Step 5: Apply portfolio optimization

Cover image Figure 27.5 Sensitivity of Black Litterman Portfolio Performance to Confidence Level (view is correct)

Cover image Figure 27.6 Sensitivity of Black Litterman Portfolio Performance to Confidence Level (view is false)

Cover image Table 27.6 M-Square for the Portfolio, Actual Forecasts

Cover image Table 27.7 M-Square for the Simulated Portfolios

Cover image Concluding Remarks on the Theory of Active Investments  The gap between theory and practice has been narrowing in recent years  The CFA is expanding knowledge base in the industry  Specific lack of application of the Treynor-Black model may be related to lack of application of adjusting for analysts’ errors