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Efficient asset management: a practical guide to stock portfolio optimization and asset allocation

Author: Michaud, Richard O. Series: Financial Management Association survey and synthesis series Publisher: Harvard Business School Press, 1998.Language: EnglishDescription: 152 p. ; 24 cm.ISBN: 0875847439Type of document: BookBibliography/Index: Includes bibliographical references and index
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Item type Current location Collection Call number Status Date due Barcode Item holds
Book Europe Campus
Main Collection
Print HG4529.5 .M53 1998
(Browse shelf)
Available 001119043
Total holds: 0

Includes bibliographical references and index


Efficient Asset Management A Practical Guide to Stock Portfolio Optimization and Asset Allocation Contents Preface xiii Chapter 1: Introduction 1 Markowitz Efficiency 1 An Asset Management Tool 2 Traditional Objections 3 The Most Important Limitations 3 Resolving the Limitations of Mean-Variance Optimization 4 Illustrating the Techniques 5 Chapter 2: Classic Mean-Variance Optimization 7 Portfolio Risk and Return 7 Defining Markowitz Efficiency 9 Optimization Constraints 9 The Residual Risk-Return Efficient Frontier 10 Computational Algorithms 10 Asset Allocation versus Equity Portfolio Optimization 11 A Global Asset Allocation Example 13 Reference Portfolios and Portfolio Analysis 16 Return Premium Efficient Frontiers 16 Appendix: Mathematical Formulation of Mean-Variance Efficiency 20 Chapter 3: Traditional Criticisms and Alternatives 23 Alternative Measures of Risk 23 Utility Function Optimization 25 Multiperiod Investment Horizons 26 Asset-Liability Financial Planning Studies 29 Linear Programming Optimization 31 viii Efficient Asset Management Chapter 4: Understanding Mean-Variance Efficiency 33 The Fundamental Limitations of Mean-Variance Efficiency 33 Repeating Jobson and Korkie 35 Implications of Jobson and Korkie Analysis 36 The Statistical Character of Mean-Variance Efficiency 36 Efficient Frontier Variance 36 The Statistical Equivalence Region 37 A Practical Investment Tool? 39 Chapter 5: Portfolio Review and Mean-Variance Efficiency 41 Portfolio Review and Statistical Inference 41 Tests of Asset Pricing Models 41 Heuristic Inference 42 A Sample Acceptance Region 42 Statistical Inference for a Target Efficient Portfolio 45 Rank-Associated Efficient Portfolios 45 Chapter 6: Portfolio Analysis and the Resampled Efficient Frontier 49 Conceptual Portfolio Statistical Analysis 49 Efficient Portfolio Statistical Analysis 49 The Resampled Efficient Frontier 55 True and Estimated Optimization Inputs 56 Testing Resampled Efficiency 56 Properties of Resampled Efficient Frontiers 60 Resampled Efficient Frontier Range 61 Caveats 61 Conclusion 62 Appendix: Resampled Efficiency Tests and Alternatives 63 Contents ix Chapter 7: Portfolio Revision and Confidence Regions 71 Confidence Intervals and Regions 71 Resampled Efficiency and Distance Functions 72 Resampled Efficient Frontier Confidence Regions 73 Simultaneous Confidence Intervals 75 Examples of Simultaneous Confidence Intervals 76 Ambiguity and Portfolio Efficiency 77 Practical Considerations 79 Appendix A: Confidence Region for the Sample Mean Vector 80 Appendix B: Computing Confidence Regions and Simultaneous Intervals 81 Chapter 8: Input Estimation and Stein Estimators 83 Admissible Estimators 8 4 Bayesian Procedures and Priors 84 Four Stein Estimators 85 James-Stein Estimator 85 James-Stein Mean-Variance Efficiency 86 James-Stein Estimator Test of Resampled and Mean-Variance Efficiency 90 Frost-Savarino Estimator 93 Covariance Estimation 94 Stein Covariance Estimation 96 Forecasting Stock Risk and Return 97 Utility Functions and Input Estimation 97 Ad Hoc Estimators 98 Conclusions 98 Appendix: Ledoit Covariance Estimation 99 Chapter 9: Benchmark Active Asset Allocation 101 Benchmark-Relative Active Asset Allocation 102 x Efficient Asset Management Implied-Return Asset Allocation 105 Comparing Implied-Return and Benchmark-Relative Frontiers 109 Scaling and Implied Returns 109 Roll's Analysis 112 Additional Procedures 113 Chapter 10: Investment Policy and Economic Liabilities 115 Misusing Mean-Variance Efficiency 115 Economic Liability Models 116 An Example: Endowment Fund Investment Policy 117 Pension Liabilities and Benchmark Optimization 117 Limitations of Actuarial Liability Estimation 118 Economic Significance of Variable Liabilities 120 Economic Characteristics of Variable Liabilities 121 An Example: Economic Liability Pension Investment Policy 122 Conclusion 126 Chapter 11: Return Forecasts and Mixed Estimation 127 Asset Allocation and Ad Hoc Inputs 127 Mixed Estimation Forecasts 128 Mixed Estimation Asset Allocation Inputs 128 Index-Relative Active Asset Allocation 128 Benefits 130 Equity Return Forecasts and Mixed Estimation 130 Chapter 12: Avoiding Optimization Errors 133 Scaling Inputs 133 Financial Reality 135 Liquidity Factors 135 Constraints 135 Contents xi Biased Portfolio Characteristics 136 Index Funds and Optimizers 137 Optimization from Cash 138 Forecast Return Limitations 139 Conclusion 140 Epilogue 141 Bibliography 143 Index 149

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