introduction to asset management-introduction to financial time series analysis

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1、Chapter2Introductiontoassetmanagement2.1Portfoliomanagement2.1.1DefiningportfoliomanagementAfinancialportfolioconsistsinagroupoffinancialassets,alsocalledsecuritiesorinvestments,suchasstocks,bonds,futures,orgroupsoftheseinvestmentvehiclesreferredasexchan

2、ge-traded-funds(ETFs).Thebuildingoffinancialportfolioconstitutesawellknownprobleminfinancialmarketsrequiringarigorousanalysisinordertoselectthemostprofitableassets.Portfolioconstructionconsistsoftwointerrelatedtasks1.anassetallocationtaskforchoosinghowto

3、allocatetheinvestor’swealthbetweenarisk-freesecurityandasetofNriskysecurities,and2.ariskyportfolioconstructiontaskforchoosinghowtodistributewealthamongtheNriskysecurities.Therefore,inordertoconstructaportfolio,wemustdefineinvestmentsobjectivesbyfocusin

4、gonaccepteddegreeofriskforagivenreturn.Portfoliomanagementistheactofdecidingwhichassetsneedtobeincludedintheportfolio,howmuchcapitalshouldbeallocatedtoeachkindofsecurity,andwhentoremoveaspecificinvestmentfromtheholdingportfoliowhiletakingtheinvestor’sp

5、referencesintoaccount.Wecanapplytwoformsofmanagement(seeMaginnetal.[2007])1.Passivemanagementinwhichtheinvestorconcentrateshisobjectiveontrackingamarketindex.Thisisrelatedtotheideathatitisnotpossibletobeatthemarketindex,asstatedbytheRandomWalkTheory(s

6、eeSection(1.7.2)).Apassivestrategyaimsonlyatestablishingawelldiversifiedportfoliowithouttryingtofindunderorovervaluedstocks.2.Activemanagementwherethemaingoaloftheinvestorconsistsinoutperforminganinvestmentbenchmarkindex,buyingundervaluedstocksandsellin

7、govervaluedones.AsexplainedbyJacobsetal.[2006],atypicalequityportfolioisconstructedandmanagedrelativetoanunderlyingbenchmark.Designedtotrackabenchmark,anindexedequityportfolioisapassivemanagementstylewithnoactivereturnsandresidualriskconstrainedtobecl

8、osetozero(seeEquation(8.2.1)).Whiletheindexedequityportfoliomayunderperformthebenchmarkaftercostsareconsidered,enhancedindexedportfoliosaredesignedtoprovideanindex-likeperformanceplussomeexcessreturnaftercosts.Thelatterareallowedtorelaxthecons