the theory of active portfolio management

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1、FinalPDFtoprinterCHAPTERTWENTY-SEVENTheTheoryofActivePortfolioManagement277THISCHAPTERCONSIDERS practicalcom-intheforecastsofalphavaluesandtheplexitiesintheprocessofconstructingopti-extremeportfoliopositionsoftenprescribedmalportfolios.Itmightseemthatthewordbythemodel.Arm

2、edwiththeseinsights,we“theory”inthechaptertitleisinconsistentpresentaprototypeorganizationalchartandwiththispracticalgoal,andthattheforego-discusstheefficacyoffittingtheorganizationingchaptersmustalreadyhaveexhaustedtothetheoreticalunderpinningofportfoliotheinsightthatthe

3、orycanimparttoportfo-management.liomanagementinthefield—therestsurelyInthenextsection,wepresenttheBlack-mustrelyonlearningbydoing.LittermanmodelthatallowsflexibleviewsWewillsee,however,thattheoryhasaabouttheexpectedreturnsofassetclassestosignificantcontributiontooffereven

4、whenimproveassetallocation.Finally,welookintoitcomestothedailygrindofputtingitallthepotentialprofitabilityofsecurityanalysistogether.WebeginwiththeTreynor-Blackandendwithconcludingremarks.Anappen-modelthatwefirstencounteredinChapter 8,dixtothechapterpresentsthemathematics

5、nowshowinghowtohandlelimitedprecisionunderlyingtheBlack-Littermanmodel.27.1OptimalPortfoliosandAlphaValuesInChapter8weshowedhowtoformanoptimalriskyportfoliowithasingle-indexmodel.Table 27.1summarizesthestepsinthisoptimization,commonlyknownastheTreynor-Blackmodel.1Theoutli

6、nedprocedureusestheindexmodelthatignoresnonzerocova-PARTVIIriancevaluesacrossresiduals.Thisissometimescalledthediagonalmodel,becauseitassumesthatthecovariancematrixofresidualshasnonzeroentriesonlyonthediagonals.Moreover,wesawthatdespitesignificantcorrelationbetweensomepai

7、rsofresidualsintheportfolioconstructionexampleweusedinChapter8,forexample,betweenShellandBP,theefficientfrontiersformedfromtheindexmodelandtheMarkowitzmodelwerebarelydistinguishable(seeFigure8.5ofChapter8).1WeknowfromChapter10thatamultiple-indexmodelsuchasthatofFamaandFre

8、nchmaybetterdescribesecurityreturns.Inthatcase,thepassivemarket-indexportfoliowillbeaugmentedwit