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Equity Valuation and Portfolio Management by Harry M. Markowitz, Frank J. Fabozzi

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QUESTIONS

  1. What is the purpose of estimating model risk?
  2. How is behavioral modeling used?
  3. What are some of the reasons for the greater use of optimization techniques?
  4. What are meant by a fundamental, quantitative, and hybrid investment processes?
    1. Why are adaptive modeling techniques used by quantitative equity managers?
    2. Describe several examples of adaptive modeling techniques and the challenge in using them.
  5. What is meant by “performance decay”?
  6. How has the execution process undergone important changes in recent years?

1 In the quotes from sources in these studies, we omit the usual practice of identifying the reference and page number. The study where the quote is obtained will be clear.

2 The results of this study are reported in Frank J. Fabozzi, Sergio M. Focardi, and Caroline L. Jonas, “Trends in Quantitative Asset Management in Europe,” Journal of Portfolio Management 31, no. 4 (2004): 125–132 (Special European Section).

3 This statement is not strictly true. With the availability of high-frequency data, there is a new strain of financial econometrics that considers volatility as an observable realized volatility.

4 For a discussion of the different families of financial models and modeling issues, see Sergio M. Focardi and Frank J. Fabozzi, The Mathematics of Financial Modeling and Investment Management (Hoboken, NJ: John Wiley & Sons, 2004).

5 François Longin,“Stock Market Crashes: Some Quantitative Results Based on Extreme Value Theory.” Derivatives Use, Trading ...

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