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Risk-Return Analysis: The Theory and Practice of Rational Investing (Volume One)

Book Description

The two most important words Harry Markowitz ever wrote are portfolio selection.In 1952, when everyone in the stock market was looking for the next hot stock, as a doctoral candidate, he proposed to look at many, diverse stocks a portfolio.

Table of Contents

  1. Cover
  2. RISK-RETURN ANALYSIS: The Theory and Practice of Rational Investing, Volume I
  3. Copyright Page
  4. Dedication
  5. Contents
  6. Foreword
  7. Preface
  8. Acknowledgments
  9. Outline of Plans for Volumes II, III, and IV
  10. 1. The Expected Utility Maxim
    1. Introduction
    2. Definitions
    3. Uniqueness
    4. Characteristics of Expected Utility Maximization
    5. RDMs Versus HDMs
    6. Allais’s Paradox
    7. Weber’s Law and the Allais Paradox
    8. The Axioms
    9. Axiom I
    10. Axiom II
    11. Axioms III and III’
    12. Bounded Versus Unbounded Utility of Returns
    13. Postscript
  11. 2. Mean-Variance Approximations to Expected Utility
    1. Introduction
    2. Why Not Just Maximize Expected Utility?
    3. Utility of Return Versus Utility of Wealth
    4. Loistl’s Erroneous Analysis
    5. Levy and Markowitz (1979)
    6. Highly Risk-Averse Investors
    7. Highly Risk-Averse Investors and a Risk-Free Asset
    8. Portfolios of Call Options
    9. Ederington’s Quadratic and Gaussian Approximations to Expected Utility
    10. Other Pioneers
    11. Conclusion
  12. 3. Mean-Variance Approximations to the Geometric Mean
    1. Introduction
    2. Why Inputs to a Mean-Variance Analysis Must Be Arithmetic Means
    3. Six Mean-Variance Approximations to g
    4. Observed Approximation Errors for Asset Classes
    5. Relationships Among Approximation Methods
    6. Twentieth-Century Real Equity Returns
    7. Choice of Approximation
    8. Recap
    9. Technical Note: Selecting a Weighted Average of Approximations
  13. 4. Alternative Measures of Risk
    1. Introduction
    2. The Asset-Class Database
    3. Comparisons
    4. The DMS Database
    5. Caveat and Conclusion
  14. 5. The Likelihood of Various Return Distributions (With Anthony Tessitore, Ansel Tessitore, and Nilufer Usmen)
    1. Introduction
    2. Bayes Factors
    3. Transformed Variables
    4. Compound Hypotheses
    5. The Pearson Family
    6. The DMS Database
    7. Practically Normal Distributions
    8. Illustrative Histograms
    9. Near LH-Maximizing Distributions for the Ensemble
    10. Transformed Country Distributions
    11. Observations
    12. Recommendation
  15. Notes
  16. References
  17. Index