CHAPTER 24
Portfolio Performance Evaluation
24-2
Introduction
Two common ways to measure
average portfolio return:
1. Time-weighted returns
2. Dollar-weighted returns
Returns must be adjusted for risk.
24-3
Dollar- and Time-Weighted Returns
Time-weighte
CHAPTER 16
Managing Bond Portfolios
16-2
Bond Pricing Relationships (Recap)
1. Bond prices and yields are inversely
related. (True or False)
2. An increase in a bonds yield to maturity
results in a smaller price change than a
decrease of equal magnitude.
CHAPTER 12
Behavioral Finance and Technical
Analysis
12-2
Behavioral Finance
Conventional
Finance
Prices are correct;
equal to intrinsic
value.
Resources are
allocated efficiently.
Consistent with EMH
Behavioral Finance
What if investors dont
behave r
CHAPTER 10
Arbitrage Pricing Theory and
Multifactor Models of Risk and
Return
10-2
Single Factor Model
Returns on a security come from two
sources:
Common macro-economic factor
Firm specific events
Possible common macro-economic
factors
Gross Domesti
CHAPTER 9
The Capital Asset Pricing Model
Capital Asset Pricing Model (CAPM)
It is the equilibrium model that underlies all
modern financial theory
Derived using principles of diversification
with simplified assumptions
Markowitz, Sharpe, Lintner and M
CHAPTER 8
Index Models
8-2
Advantages of the Single Index Model
Reduces the number of inputs for
diversification
Allow security analysts to input
8-3
The rate of return on security i
ri = E(ri) + ei
ei :unanticipated components with zero mean
ri = E(ri)
CHAPTER 7
Optimal Risky Portfolios
7-2
The Investment Decision
Top-down process with 3 steps:
1. Capital allocation between the risky portfolio
and risk-free asset
2. Asset allocation across broad asset classes
3. Security selection of individual assets
CHAPTER 6
Risk Aversion and
Capital Allocation
to Risky Assets
6- 1
How much risk can you take?
Will you consider too risky to invest in
stocks?
After buying a stock, will you keep on
tracking its price every hours?
Can you sleep well if the share pric
Investments
A life-time learning process
No model answers
Who would expect to have QE1, QE2
decades ago?
Believe in yourselves (if you are prepared)
NOT any other professionals
5- 1
Simple rule
Reducing your risk will increase your
chance of winning