investment index models

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1、FinalPDFtoprinterCHAPTEREIGHT8IndexModelsTHEMARKOWITZPROCEDURE introducedstatisticalpropertiesoftheseestimatesandintheprecedingchaptersuffersfromtwoshowhowtheyrelatetothepracticalissuesdrawbacks.First,themodelrequiresahugefacingportfoliomanagers.numberofestimatestofillthecovarianceDespitethe

2、simplificationtheyoffer,matrix.Second,themodeldoesnotprovideindexmodelsremaintruetotheconceptsanyguidelinetotheforecastingofthesecu-oftheefficientfrontierandportfolioopti-rityriskpremiumsthatareessentialtocon-mization.Empirically,indexmodelsareasstructtheefficientfrontierofriskyassets.valida

3、stheassumptionofnormalityoftheBecausepastreturnsareunreliableguidestoratesofreturnonavailablesecurities.Toexpectedfuturereturns,thisdrawbackcanbetheextentthatshort-termreturnsarewelltelling.approximatedbynormaldistributions,indexInthischapterweintroduceindexmod-modelscanbeusedtoselectoptimal

4、port-elsthatsimplifyestimationofthecovari-foliosnearlyasaccuratelyastheMarkowitzancematrixandgreatlyenhancetheanalysisalgorithm.Finally,weexamineoptimalofsecurityriskpremiums.Byallowingustoriskyportfoliosconstructedusingtheindexexplicitlydecomposeriskintosystematicandmodel.Whiletheprinciples

5、arethesamefirm-specificcomponents,thesemodelsalsoasthoseemployedinthepreviouschapter,shedconsiderablelightonboththepowerthepropertiesoftheportfolioareeasierandthelimitsofdiversification.Further,theytoderiveandinterpretinthiscontext.Weallowustomeasurethesecomponentsofriskillustratehowtousethe

6、indexmodelbycon-forparticularsecuritiesandportfolios.structinganoptimalriskyportfoliousingaWebeginthechapterbydescribingasmallsampleoffirms.Thisportfolioiscom-single-factorsecuritymarketandshowhowparedtothecorrespondingportfoliocon-itcanjustifyasingle-indexmodelofsecuritystructedfromtheMarko

7、witzmodel.Wereturns.Onceitspropertiesareanalyzed,weconcludewithadiscussionofseveralpracti-proceedtoanextensiveexampleofestima-calissuesthatarisewhenimplementingthetionofthesingle-indexmodel.Wereviewtheindexmodel.PARTIIbod61671_ch08_256-290.indd2566