capital allocation to risky assets

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1、FinalPDFtoprinterCHAPTERSIXCapitalAllocation6toRiskyAssetsTHEPROCESSOF constructinganoverallinvestorpreferences,weneedinsightintotheportfoliorequiresyouto:(1)selectthecom-natureofriskaversion.Wecharacterizeaper-positionoftheriskyportfolioand(2) decide

2、sonalutilityfunctionthatprovidesascoreforhowmuchtoinvestinit,directingthetheattractivenessofcandidateoverallportfo-remaininginvestmentbudgettoarisk-freeliosonthebasisofexpectedreturnandrisk.investment.ThesecondstepiscalledcapitalBychoosingtheportfolio

3、withthehighestallocationtoriskyassets.score,investorsmaximizetheirsatisfactionClearly,todecideonyourcapitalallocationwiththeirchoiceofinvestments;thatis,theyyouneedtoknowtheriskyportfolioandevalu-achievetheoptimalallocationofcapitaltoateitsproperties.

4、Cantheconstructionofthatriskyassets.riskyportfoliobedelegatedtoanexpert?AnTheutilitymodelalsorevealstheappropri-affirmativeanswerisnecessaryforaviableateobjectivefunctionfortheconstructionofinvestmentsmanagementindustry.Anegativeanoptimalriskyportfoli

5、oandthusexplainsanswerwouldrequireeveryinvestortolearnandhowanindustrycanserveinvestorswithimplementportfoliomanagementforhimself.highlydiversepreferenceswithouttheneedTounderstandtheexistenceofaportfoliotoknoweachofthempersonally.managementindustryin

6、thefaceofpersonal6.1RiskandRiskAversionInChapter5weintroducedtheconceptsoftheholding-periodreturn(HPR)andtheexcessrateofreturnovertherisk-freerate.Wealsodiscussedestimationoftheriskpremium(theexpectedexcessreturn)andthestandarddeviationoftheexcessretu

7、rn,whichweuseasthemeasureofportfoliorisk.Wedemonstratedtheseconceptswithascenarioanalysisofaspecificriskyportfolio(Spreadsheet5.1).Toemphasizethatbearingrisktypicallymustbeaccompaniedbyarewardintheformofariskpremium,wefirstdifferentiatebetweenspeculat

8、ionandgambling.PARTIIbod61671_ch06_168-204.indd1686/18/138:08PMFinalPDFtoprinterCHAPTER6CapitalAllocationtoRiskyAssets169Risk,Speculation,andGamblingOnedefinitionofspeculationis“theassumptionofconsiderableinvestmentrisktoobtaincommensurategain