Jack Clark Francis, Dongcheol Kim

Modern Portfolio Theory, + Website

Foundations, Analysis, and New Developments

• Gebundenes Buch

Produktbeschreibung

A through guide covering Modern Portfolio Theory as well as the recent developments surrounding it

Modern portfolio theory (MPT), which originated with Harry Markowitz's seminal paper "Portfolio Selection" in 1952, has stood the test of time and continues to be the intellectual foundation for real-world portfolio management. This book presents a comprehensive picture of MPT in a manner that can be effectively used by financial practitioners and understood by students.

Modern Portfolio Theory provides a summary of the important findings from all of the financial research done since MPT was created and presents all the MPT formulas and models using one consistent set of mathematical symbols. Opening with an informative introduction to the concepts of probability and utility theory, it quickly moves on to discuss Markowitz's seminal work on the topic with a thorough explanation of the underlying mathematics.
Analyzes portfolios of all sizes and types, shows how the advanced findings and formulas are derived, and offers a concise and comprehensive review of MPT literature
Addresses logical extensions to Markowitz's work, including the Capital Asset Pricing Model, Arbitrage Pricing Theory, portfolio ranking models, and performance attribution
Considers stock market developments like decimalization, high frequency trading, and algorithmic trading, and reveals how they align with MPT
Companion Website contains Excel spreadsheets that allow you to compute and graph Markowitz efficient frontiers with riskless and risky assets

If you want to gain a complete understanding of modern portfolio theory this is the book you need to read.

Produktdetails

• Wiley Finance
• Verlag: Wiley & Sons
• 1. Auflage
• Seitenzahl: 576
• Erscheinungstermin: 22. Januar 2013
• Englisch
• Abmessung: 260mm x 183mm x 35mm
• Gewicht: 1060g
• ISBN-13: 9781118370520
• ISBN-10: 111837052X
• Artikelnr.: 36265480

Autorenporträt

JACK CLARK FRANCIS is Professor of Economics and Finance at Bernard M. Baruch College in New York City. His research focuses on investments, banking, and monetary economics, and he has had dozens of articles published in many refereed academic, business, and government journals. Dr. Francis was an assistant professor of finance at the University of Pennsylvania's Wharton School of Finance for five years and was a Federal Reserve economist for two years. He received his bachelor's and MBA from Indiana University and earned his PhD in finance from the University of Washington in Seattle. DONGCHEOL KIM is a Professor of Finance at Korea University in Seoul. He served as president of the Korea Securities Association and editor-in-chief of the Asia-Pacific Journal of Financial Studies. Previously, he was a finance professor at Rutgers University. Kim has published articles in Financial Management, the Accounting Review, Journal of Financial and Quantitative Analysis, Journal of Economic Research, Journal of Finance, and Journal of the Futures Market.

Inhaltsangabe

Contents Preface xvii CHAPTER 1 Introduction 1 1.1 The Portfolio Management
Process 1 1.2 The Security Analyst's Job 1 1.3 Portfolio Analysis 2 1.4
Portfolio Selection 5 1.5 The Mathematics is Segregated 6 1.6 Topics to be
Discussed 6 Appendix: Various Rates of Return 7 PART ONE Probability
Foundations CHAPTER 2 Assessing Risk 13 2.1 Mathematical Expectation 13 2.2
What Is Risk? 15 2.3 Expected Return 16 2.4 Risk of a Security 17 2.5
Covariance of Returns 18 2.6 Correlation of Returns 19 2.7 Using Historical
Returns 20 2.8 Data Input Requirements 22 2.9 Portfolio Weights 22 2.10 A
Portfolio's Expected Return 23 2.11 Portfolio Risk 23 2.12 Summary of
Notations and Formulas 27 CHAPTER 3 Risk and Diversification 29 3.1
Reconsidering Risk 29 3.2 Utility Theory 32 3.3 Risk-Return Space 36 3.4
Diversification 38 3.5 Conclusions 41 PART TWO Utility Foundations CHAPTER
4 Single-Period Utility Analysis 45 4.1 Basic Utility Axioms 46 4.2 The
Utility of Wealth Function 47 4.3 Utility of Wealth and Returns 47 4.4
Expected Utility of Returns 48 4.5 Risk Attitudes 52 4.6 Absolute Risk
Aversion 59 4.7 Relative Risk Aversion 60 4.8 Measuring Risk Aversion 62
4.9 Portfolio Analysis 66 4.10 Indifference Curves 69 4.11 Summary and
Conclusions 74 Appendix: Risk Aversion and Indifference Curves 75 PART
THREE Mean-Variance Portfolio Analysis CHAPTER 5 Graphical Portfolio
Analysis 85 5.1 Delineating Efficient Portfolios 85 5.2 Portfolio Analysis
Inputs 86 5.3 Two-Asset Isomean Lines 87 5.4 Two-Asset Isovariance Ellipses
90 5.5 Three-Asset Portfolio Analysis 92 5.6 Legitimate Portfolios 102 5.7
''Unusual'' Graphical Solutions Don't Exist 103 5.8 Representing
Constraints Graphically 103 5.9 The Interior Decorator Fallacy 103 5.10
Summary 104 Appendix: Quadratic Equations 105 CHAPTER 6 Efficient
Portfolios 113 6.1 Risk and Return for Two-Asset Portfolios 113 6.2 The
Opportunity Set 114 6.3 Markowitz Diversification 120 6.4 Efficient
Frontier without the Risk-Free Asset 123 6.5 Introducing a Risk-Free Asset
126 6.6 Summary and Conclusions 131 Appendix: Equations for a Relationship
between Erp) and sigmap CHAPTER 7 Advanced Mathematical Portfolio Analysis
135 7.1 Efficient Portfolios without a Risk-Free Asset 135 7.2 Efficient
Portfolios with a Risk-Free Asset 146 7.3 Identifying the Tangency
Portfolio 150 7.4 Summary and Conclusions 152 Appendix: Mathematical
Derivation of the Efficient Frontier 152 CHAPTER 8 Index Models and
Return-Generating Process 165 8.1 Single-Index Models 165 8.2 Efficient
Frontier and the Single-Index Model 178 8.3 Two-Index Models 186 8.4
Multi-Index Models 189 8.5 Conclusions 190 Appendix: Index Models 191 PART
FOUR Non-Mean-Variance Portfolios CHAPTER 9 Non-Normal Distributions of
Returns 201 9.1 Stable Paretian Distributions 201 9.2 The Student's t
-Distribution 204 9.3 Mixtures of Normal Distributions 204 9.4 Poisson
Jump-Diffusion Process 206 9.5 Lognormal Distributions 206 9.6 Conclusions
213 CHAPTER 10 Non-Mean-Variance Investment Decisions 215 10.1 Geometric
Mean Return Criterion 215 10.2 The Safety-First Criterion 218 10.3
Semivariance Analysis 228 10.4 Stochastic Dominance Criterion 236 10.5
Mean-Variance-Skewness Analysis 246 10.6 Summary and Conclusions 254
Appendix A: Stochastic Dominance 254 Appendix B: Expected Utility as a
Function of Three Moments 257 CHAPTER 11 Risk Management: Value at Risk 261
11.1 VaR of a Single Asset 261 11.2 Portfolio VaR 263 11.3 Decomposition of
a Portfolio's VaR 265 11.4 Other VaRs 269 11.5 Methods of Measuring VaR 270
11.6 Estimation of Volatilities 277 11.7 The Accuracy of VaR Models 282
11.8 Summary and Conclusions 285 Appendix: The Delta-Gamma Method 285 PART
FIVE Asset Pricing Models CHAPTER 12 The Capital Asset Pricing Model 291
12.1 Underlying Assumptions 291 12.2 The Capital Market Line 292 12.3 The
Capital Asset Pricing Model 295 12.4 Over- and Under-priced Securities 299
12.5 The Market Model and the CAPM 300 12.6 Summary and Conclusions 301
Appendix: Derivations of the CAPM 301 CHAPTER 13 Extensions of the Standard
CAPM 311 13.1 Risk-Free Borrowing or Lending 311 13.2 Homogeneous
Expectations 316 13.3 Perfect Markets 318 13.4 Unmarketable Assets 322 13.5
Summary and Conclusions 323 Appendix: Derivations of a Non-Standard CAPM
324 CHAPTER 14 Empirical Tests of the CAPM 333 14.1 Time-Series Tests of
the CAPM 333 14.2 Cross-Sectional Tests of the CAPM 335 14.3 Empirical
Misspecifications in Cross-Sectional Regression Tests 345 14.4 Multivariate
Tests 353 14.5 Is the CAPM Testable? 356 14.6 Summary and Conclusions 357
CHAPTER 15 Continuous-Time Asset Pricing Models 361 15.1 Intertemporal CAPM
(ICAPM) 361 15.2 The Consumption-Based CAPM (CCAPM) 363 15.3 Conclusions
366 Appendix: Lognormality and the Consumption-Based CAPM 367 CHAPTER 16
Arbitrage Pricing Theory 371 16.1 Arbitrage Concepts 371 16.2 Index
Arbitrage 375 16.4 Asset Pricing on a Security Market Plane 383 16.5
Contrasting APT with CAPM 385 16.6 Empirical Evidence 386 16.7 Comparing
the APT and CAPM Empirically 388 16.8 Conclusions 389 PART SIX Implementing
the Theory CHAPTER 17 Portfolio Construction and Selection 395 17.1
Efficient Markets 395 17.2 Using Portfolio Theories to Construct and Select
Portfolios 398 17.3 Security Analysis 400 17.4 Market Timing 401 17.5
Diversification 407 17.6 Constructing an Active Portfolio 415 17.7
Portfolio Revision 424 17.8 Summary and Conclusions 430 Appendix: Proofs
for Some Ratios from Active Portfolios 431 CHAPTER 18 Portfolio Performance
Evaluation 435 18.1 Mutual Fund Returns 435 18.2 Portfolio Performance
Analysis in the Good Old Days 436 18.3 Capital Market Theory Assumptions
438 18.4 Single-Parameter Portfolio Performance Measures 438 18.5 Market
Timing 449 18.6 Comparing Single-Parameter Portfolio Performance Measures
452 18.7 The Index of Total Portfolio Risk (ITPR) and the Portfolio Beta
454 18.8 Measurement Problems 457 18.9 Do Winners or Losers Repeat? 461
18.10 Summary about Investment Performance Evaluation 465 Appendix: Sharpe
Ratio of an Active Portfolio 467 CHAPTER 19 Performance Attribution 473
19.1 Factor Model Analysis 474 19.2 Return-Based Style Analysis 475 19.3
Return Decomposition-Based Analysis 479 19.4 Conclusions 485 Appendix:
Regression Coefficients Estimation with Constraints 486 CHAPTER 20 Stock
Market Developments 489 20.1 Recent NYSE Consolidations 489 20.2
International Securities Exchange (ISE) 492 20.3 Nasdaq 492 20.4 Downward
Pressures on Transactions Costs 494 20.5 The Venerable Limit Order 497 20.6
Market Microstructure 498 20.7 High-Frequency Trading 499 20.8 Alternative
Trading Systems (ATSs) 500 20.9 Algorithmic Trading 501 20.10 Symbiotic
Stock Market Developments 505 20.11 Detrimental Stock Market Developments
505 20.12 Summary and Conclusions 506 Mathematical Appendixes 509
Bibliography 519 About the Authors 539 Author Index 541 Subject Index 547