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Steven Popovic
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Decks in this class (15)
A NOTE ON THE TERMINOLOGY OF ACTIVE PORTFOLIO MANAGEMENT
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a explain mean–variance analysis and its assumptions, and calculate the expected return and the standard deviation of return for a portfolio of two or three assets;
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b describe the minimum-variance and efficient frontiers, and explain the steps to solve for the minimum-variance frontier;
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c explain the benefits of diversification and how the correlation in a two-asset portfolio and the number of assets in a multi-asset portfolio affect the diversification benefits;
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d calculate the variance of an equally weighted portfolio of n stocks, explain the capital allocation and capital market lines (CAL and CML) and the relation between them, and calculate the value of one of the variables given values of the remaining variables;
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e explain the capital asset pricing model (CAPM), including its underlying assumptions and the resulting conclusions;
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f explain the security market line (SML), the beta coefficient, the market risk premium, and the Sharpe ratio, and calculate the value of one of these variables given the values of the remaining variables;
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g explain the market model, and state and interpret the market model’s predictions with respect to asset returns, variances, and covariances;
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h calculate an adjusted beta, and explain the use of adjusted and historical betas as predictors of future betas;
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i explain reasons for and problems related to instability in the minimum-variance frontier;
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j describe and compare macroeconomic factor models, fundamental factor models, and statistical factor models;
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k calculate the expected return on a portfolio of two stocks, given the estimated macroeconomic factor model for each stock;
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l describe the arbitrage pricing theory (APT), including its underlying assumptions and its relation to the multifactor models, calculate the expected return on an asset given an asset’s factor sensitivities and the factor risk premiums, and determine whether an arbitrage opportunity exists, includi
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m explain sources of active risk, interpret tracking error, tracking risk, and the information ratio, and explain factor portfolio and tracking portfolio;
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n compare underlying assumptions and conclusions of the CAPM and APT model, and explain why an investor can possibly earn a substantial premium for exposure to dimensions of risk unrelated to market movements.
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More about
l2 57 portfolio concepts
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