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Lesson 26 of 29

Justifying Active Portfolio Management

  • Two arguments can be used to justify active portfolio management for investors:
  1. 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.
  2. 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.

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Impacts of Market Segmentation on ICAPM

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The Treynor-Black Model

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Portfolio Management

29 lessons

Lessons

1
CFA Level 2: Portfolio Management – Introduction
2
Mean-Variance Analysis Assumptions
3
Expected Return and Variance for a Two Asset Portfolio
4
The Minimum Variance Frontier & Efficient Frontier
5
Diversification Benefits
6
The Capital Allocation Line – Introducing the Risk-free Asset
7
The Capital Market Line
8
CAPM & the SML
9
Adding an Asset to a Portfolio – Improving the Minimum Variance Frontier
10
The Market Model for a Security’s Returns
11
Adjusted and Unadjusted Beta
12
Multifactor Models
13
Arbitrage Portfolio Theory (APT) – A Multifactor Macroeconomic Model
14
Risk Factors and Tracking Portfolios
15
Markowitz, MPT, and Market Efficiency
16
International Capital Market Integration
17
Domestic CAPM and Extended CAPM
18
Changes in Real Exchange Rates
19
International CAPM (ICAPM) - Beyond Extended CAPM
20
Measuring Currency Exposure
21
Company Stock Value Responses to Changes in Real Exchange Rates
22
ICAPM vs. Domestic CAPM
23
The J-Curve – Impact of Exchange Rate Changes on National Economies
24
Moving Exchange Rates and Equity Markets
25
Impacts of Market Segmentation on ICAPM
26
Justifying Active Portfolio Management
27
The Treynor-Black Model
28
Portfolio Management Process
29
The Investor Policy Statement
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