Book description
A through guide covering Modern Portfolio Theory as well as the recent developments surrounding it
Modern portfolio theory (MPT), which originated with Harry Markowitz's seminal paper "Portfolio Selection" in 1952, has stood the test of time and continues to be the intellectual foundation for real-world portfolio management. This book presents a comprehensive picture of MPT in a manner that can be effectively used by financial practitioners and understood by students.
Modern Portfolio Theory provides a summary of the important findings from all of the financial research done since MPT was created and presents all the MPT formulas and models using one consistent set of mathematical symbols. Opening with an informative introduction to the concepts of probability and utility theory, it quickly moves on to discuss Markowitz's seminal work on the topic with a thorough explanation of the underlying mathematics.
Analyzes portfolios of all sizes and types, shows how the advanced findings and formulas are derived, and offers a concise and comprehensive review of MPT literature
Addresses logical extensions to Markowitz's work, including the Capital Asset Pricing Model, Arbitrage Pricing Theory, portfolio ranking models, and performance attribution
Considers stock market developments like decimalization, high frequency trading, and algorithmic trading, and reveals how they align with MPT
Companion Website contains Excel spreadsheets that allow you to compute and graph Markowitz efficient frontiers with riskless and risky assets
If you want to gain a complete understanding of modern portfolio theory this is the book you need to read.
Table of contents
- Cover
- Series Page
- Title Page
- Copyright
- Dedication
- Preface
- Chapter 1: Introduction
-
Part One: Probability Foundations
-
Chapter 2: Assessing Risk
- 2.1 Mathematical Expectation
- 2.2 What Is Risk?
- 2.3 Expected Return
- 2.4 Risk of a Security
- 2.5 Covariance of Returns
- 2.6 Correlation of Returns
- 2.7 Using Historical Returns
- 2.8 Data Input Requirements
- 2.9 Portfolio Weights
- 2.10 A Portfolio's Expected Return
- 2.11 Portfolio Risk
- 2.12 Summary of Notations and Formulas
- Notes
- Chapter 3: Risk and Diversification
-
Chapter 2: Assessing Risk
-
Part Two: Utility Foundations
-
Chapter 4: Single-Period Utility Analysis
- 4.1 Basic Utility Axioms
- 4.2 The Utility of Wealth Function
- 4.3 Utility of Wealth and Returns
- 4.4 Expected Utility of Returns
- 4.5 Risk Attitudes
- 4.6 Absolute Risk Aversion
- 4.7 Relative Risk Aversion
- 4.8 Measuring Risk Aversion
- 4.9 Portfolio Analysis
- 4.10 Indifference Curves
- 4.11 Summary and Conclusions
- Appendix: Risk Aversion and Indifference Curves
- Notes
-
Chapter 4: Single-Period Utility Analysis
-
Part Three: Mean-Variance Portfolio Analysis
-
Chapter 5: Graphical Portfolio Analysis
- 5.1 Delineating Efficient Portfolios
- 5.2 Portfolio Analysis Inputs
- 5.3 Two-Asset Isomean Lines
- 5.5 Three-Asset Portfolio Analysis
- 5.6 Legitimate Portfolios
- 5.7 “Unusual” Graphical Solutions Don't Exist
- 5.8 Representing Constraints Graphically
- 5.9 The Interior Decorator Fallacy
- 5.10 Summary
- Appendix: Quadratic Equations
- Notes
- Chapter 6: Efficient Portfolios
- Chapter 7: Advanced Mathematical Portfolio Analysis
- Chapter 8: Index Models and Return-Generating Process
-
Chapter 5: Graphical Portfolio Analysis
- Part Four: Non-Mean-Variance Portfolios
- Part Five: Asset Pricing Models
-
Part Six: Implementing the Theory
-
Chapter 17: Portfolio Construction and Selection
- 17.1 Efficient Markets
- 17.2 Using Portfolio Theories to Construct and Select Portfolios
- 17.3 Security Analysis
- 17.4 Market Timing
- 17.5 Diversification
- 17.6 Constructing an Active Portfolio
- 17.7 Portfolio Revision
- 17.8 Summary and Conclusions
- Appendix: Proofs for Some Ratios from Active Portfolios
- Notes
-
Chapter 18: Portfolio Performance Evaluation
- 18.1 Mutual Fund Returns
- 18.2 Portfolio Performance Analysis in the Good Old Days
- 18.3 Capital Market Theory Assumptions
- 18.4 Single-Parameter Portfolio Performance Measures
- 18.5 Market Timing
- 18.6 Comparing Single-Parameter Portfolio Performance Measures
- 18.7 The Index of Total Portfolio Risk (ITPR) and the Portfolio Beta
- 18.8 Measurement Problems
- 18.9 Do Winners or Losers Repeat?
- 18.10 Summary about Investment Performance Evaluation
- Appendix: Sharpe Ratio of an Active Portfolio
- Notes
- Chapter 19: Performance Attribution
-
Chapter 20: Stock Market Developments
- 20.1 Recent NYSE Consolidations
- 20.2 International Securities Exchange (ISE)
- 20.3 Nasdaq
- 20.4 Downward Pressures on Transactions Costs
- 20.5 The Venerable Limit Order
- 20.6 Market Microstructure
- 20.7 High-Frequency Trading
- 20.8 Alternative Trading Systems (ATSs)
- 20.9 Algorithmic Trading
- 20.10 Symbiotic Stock Market Developments
- 20.11 Detrimental Stock Market Developments
- 20.12 Summary and Conclusions
- Notes
-
Chapter 17: Portfolio Construction and Selection
- Mathematical Appendixes
- Bibliography
- About the Authors
- Author Index
- Subject Index
Product information
- Title: Modern Portfolio Theory: Foundations, Analysis, and New Developments, + Website
- Author(s):
- Release date: January 2013
- Publisher(s): Wiley
- ISBN: 9781118370520
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