1、CHAPTER 27,The Theory of Active Portfolio Management,27-2,Overview,Treynor-Black model The optimization uses analysts forecasts of superior performance. The model is adjusted for tracking error and for analyst forecast error. Black-Litterman model,27-3,Table 27.1 Construction and Properties of the O

2、ptimal Risky Portfolio,27-4,Spreadsheet 27.1 Active Portfolio Management,27-5,Spreadsheet 27.1,An active portfolio of six stocks is added to the passive market index portfolio. Table D shows: Performance increases are very modest. M-square increases by only 19 basis points.,27-6,Table 27.2 Stock Pri

3、ces and Analysts Target Prices for June 1, 2006,Lets add these new forecasts to the spreadsheet model and re-calculate Table D.,27-7,Figure 27.1 Rates of Return on the S&P 500 (GSPC) and the Six Stocks,27-8,Table 27.3 The Optimal Risky Portfolio,27-9,Results,The Sharpe ratio increases to 2.32, a hug

4、e risk-adjusted return advantage. M-square increases to 25.53%.,27-10,Results,Problems: The optimal portfolio calls for extreme long/short positions that may not be feasible for a real-world portfolio manager. The portfolio is too risky and most of the risk is nonsystematic risk. A solution: Restric

5、t extreme positions. This results in a lack of diversification.,27-11,Table 27.4 The Optimal Risky Portfolio with Constraint on the Active Portfolio (wA 1),27-12,Figure 27.2 Reduced Efficiency when Benchmark is Lowered,Benchmark risk is the standard deviation of the tracking error, TE = RP-RM. Contr

6、ol it by restricting WA.,27-13,Table 27.5 The Optimal Risky Portfolio with the Analysts New Forecasts,27-14,Adjusting Forecasts for the Precision of Alpha,How accurate is your forecast? Regress forecast alphas on actual, realized alphas to adjust alpha for the accuracy of the analysts previous forec

7、asts.,27-15,Figure 27.4 Organizational Chart for Portfolio Management,27-16,The Black-Litterman Model,The Black-Litterman model allows portfolio managers to incorporate complex forecasts (called “views”) into the portfolio construction process.,Historical returns, even over long periods, have very l

8、imited power to infer expected returns for the next month. The business cycle and other macroeconomic variables may be better forecasters of expected returns. Historical variance is a good predictor of expected future variance.,27-17,Steps in the Black-Litterman Model,Estimate the covariance matrix

9、from recent historical data. Determine a baseline forecast. Integrate the managers private views.,Develop revised (posterior) expectations. Apply portfolio optimization.,27-18,Figure 27.5 Sensitivity of Black-Litterman Portfolio Performance to Confidence Level,27-19,Figure 27.6 Sensitivity of Black-

10、Litterman Portfolio Performance to Confidence Level,27-20,BL Conclusions,The Black-Litterman (BL) model and the Black-Treynor (TB) model are complements. The models are identical with respect to the optimization process and will chose identical portfolios given identical inputs. The BL model is a ge

11、neralization of the TB model that allows you to have views about relative performance that cannot be used in the TB model.,27-21,BL vs. TB,Black-Litterman Model,Optimal portfolio weights and performance are highly sensitive to the degree of confidence in the views. The validity of the BL model rests

12、 largely upon the way in which the confidence about views is developed.,Treynor-Black Model,TB model is not applied in the field because it results in “wild” portfolio weights. The extreme weights are a consequence of failing to adjust alpha values to reflect forecast precision.,27-22,BL vs. TB,Blac

13、k-Litterman Model,Use the BL model for asset allocation. Views about relative performance are useful even when the degree of confidence is inaccurately estimated.,Treynor-Black Model,Use the TB model for the management of security analysis with proper adjustment of alpha forecasts.,27-23,Value of Ac

14、tive Management,Kane, Marcus, and Trippi show that active management fees depend on: the coefficient of risk aversion, the distribution of the squared information ratio in the universe of securities, the precision of the security analysts.,27-24,Table 27.6 M-Square for the Portfolio, Actual Forecast

15、s,27-25,Table 27.7 M-Square of Simulated Portfolios,27-26,Concluding Remarks,The gap between theory and practice has been narrowing in recent years. The CFA Institute has worked to transfer investment theory to the asset management industry. The TB and LB models are not yet widely used in industry,

16、perhaps because of the issues in adjusting for analysts forecast errors.,CHAPTER 28,Investment Policy and the Framework of the CFA Institute,27-28,The Four Stages of the Investment Process,Specifying objectives Specifying constraints Formulating policy Monitoring and updating portfolio,27-29,Specify

17、ing Objectives,Investment managers must assess the level of risk investors can tolerate in pursuit of higher returns.,Objectives and risk tolerance differ by type of investor.,27-30,Figure 28.1 CFA Institute Investment Management Process,27-31,Table 28.1 Components of the Investment Management Proce

18、ss,27-32,Table 28.2 Components of the Investment Policy Statement,27-33,Table 28.3 Determination of Portfolio Policies,27-34,Table 28.4 Matrix of Objectives,27-35,Liquidity Ease (speed) with which an asset can be sold and created into cash Investment horizon - planned liquidation date of the investm

19、ent Regulations Prudent investor rule Tax considerations Unique needs,Specifying Constraints on Investment Policies,27-36,Table 28.5 Matrix of Constraints,27-37,Policy Statements,The Policy Statement (IPS) provides for: Governance of the investment program, The appropriate asset allocation, Roles of

20、 internal and/or external managers, Monitoring the results, Risk management, Appropriate reporting, Accountability A course of action in case of market turmoil,27-38,Asset Allocation,By far the most important part of policy determination is asset allocation, that is, deciding how much of the portfol

21、io to invest in each major asset category.,Specify asset classes Specify capital market expectation Derive the efficient portfolio frontier. Find the optimal asset mix. Manage taxes.,27-39,Managing Portfolios of Individual Investors,Human capital and insurance Investment in residence Saving for reti

22、rement and the assumption of risk Retirement planning models Manage your own portfolio or rely on others?,27-40,Tax Sheltering for Individual Investors,Tax-deferral option - controlling the timing of gains on investments. Tax-deferred retirement plans IRAs Keogh plans Deferred annuities Fixed Variab

23、le Variable and universal life insurance,27-41,Pension Funds,Defined contribution plans Investment policy is essentially the same as for a tax-qualified individual retirement account Defined benefit plans Contractual arrangement setting out the rights and obligations of all parties,27-42,Pension Funds,The tax status of pension funds makes them favor assets with the largest spread between pretax and after-tax rates of return. Pension funds make use of immu