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Justifying Active Portfolio Management | Finance Train

Portfolio Management

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29 lessons0%

CFA Level 2: Portfolio Management – Introduction

Mean-Variance Analysis Assumptions

Expected Return and Variance for a Two Asset Portfolio

The Minimum Variance Frontier & Efficient Frontier

Diversification Benefits

The Capital Allocation Line – Introducing the Risk-free Asset

The Capital Market Line

Adding an Asset to a Portfolio – Improving the Minimum Variance Frontier

The Market Model for a Security’s Returns

Adjusted and Unadjusted Beta

Multifactor Models

Arbitrage Portfolio Theory (APT) – A Multifactor Macroeconomic Model

Risk Factors and Tracking Portfolios

Markowitz, MPT, and Market Efficiency

International Capital Market Integration

Domestic CAPM and Extended CAPM

Changes in Real Exchange Rates

International CAPM (ICAPM) - Beyond Extended CAPM

Measuring Currency Exposure

Company Stock Value Responses to Changes in Real Exchange Rates

ICAPM vs. Domestic CAPM

The J-Curve – Impact of Exchange Rate Changes on National Economies

Moving Exchange Rates and Equity Markets

Impacts of Market Segmentation on ICAPM

Justifying Active Portfolio Management

The Treynor-Black Model

Portfolio Management Process

The Investor Policy Statement

Lesson 26 of 29

Justifying Active Portfolio Management

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Impacts of Market Segmentation on ICAPM

The Treynor-Black Model

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Two arguments can be used to justify active portfolio management for investors:

Given that the mispricing of securities takes place from time to time (2007 would have been a great time to short U.S. mortgage backed securities), highly skilled active managers can exploit mispricings to generate excess returns.
Even with a passive strategy, an allocation decision must be made between the risk free asset (such as government debt) and a portfolio comprised of risky assets.

Forecasts for risks and returns must be made in order to design the individual investor's optimal portfolio.
Successful limited active management can be highly beneficial for investors as periodic allocation weighting adjustments can facilitate higher returns during economic expansion and mitigate losses during economic contraction.