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Portfolio Management in Practice, Volume 1 : Investment Management.

By: Institute, CFA.
Series: Publisher: Newark : John Wiley & Sons, Incorporated, ©2021Copyright date: ©2021Edition: 4th ed.Description: 1329 p.Content type: text Media type: unmediated Carrier type: volumeISBN: 9781119743699.Genre/Form: Print books.
Contents:
Cover -- Portfolio Management In Practice Volume 1 -- Title Page -- Copyright -- Contents -- Preface -- Acknowledgments -- About the CFA Institute Investment Series -- Chapter 1: Professionalism in the Investment Industry -- Learning Outcomes -- 1. Introduction -- 2. Professions -- 2.1. How Professions Establish Trust -- 2.2. Professions Are Evolving -- 3. Professionalism in Investment Management -- 3.1. Trust in the Investment Industry -- 3.2. CFA Institute as an Investment Professional Body -- 4. Expectations of Investment Professionals -- 5. Framework for Ethical Decision-Making -- 5.1. Description of the Framework -- 6. Challenges for Investment Professionals -- 7. Summary -- References -- Practice Problems -- Chapter 2: Fintech in Investment Management -- Learning Outcomes -- 1. Introduction -- 2. What is Fintech? -- 3. Big Data -- 3.1. Sources of Big Data -- 3.2. Big Data Challenges -- 4. Advanced Analytical Tools: Artificial Intelligence and Machine Learning -- 4.1. Types of Machine Learning -- 5. Data Science: Extracting Information from Big Data -- 5.1. Data Processing Methods -- 5.2. Data Visualization -- 6. Selected Applications of Fintech to Investment Management -- 6.1. Text Analytics and Natural Language Processing -- 6.2. Robo-Advisory Services -- 6.3. Risk Analysis -- 6.4. Algorithmic Trading -- 7. Distributed Ledger Technology -- 7.1. Permissioned and Permissionless Networks -- 7.2. Applications of Distributed Ledger Technology to Investment Management -- Summary -- Practice Problems -- Chapter 3: Capital Market Expectations, Part 1: Framework and Macro Considerations -- Learning Outcomes -- 1. Introduction -- 2. Framework and Challenges -- 2.1. A Framework for Developing Capital Market Expectations -- 2.2. Challenges in Forecasting -- 3. Economic and Market Analysis -- 3.1. The Role of Economic Analysis.
3.2. Analysis of Economic Growth -- 3.3. Approaches to Economic Forecasting -- 3.4. Business Cycle Analysis -- 3.5. Analysis of Monetary and Fiscal Policy -- 3.6. International Interactions -- 4. Summary -- References -- Practice Problems -- Chapter 4: Capital Market Expectations, Part 2: Forecasting Asset Class Returns -- Learning Outcomes -- 1. Introduction -- 2. Overview of Tools and Approaches -- 2.1. The Nature of the Problem -- 2.2. Approaches to Forecasting -- 3. Forecasting Fixed-Income Returns -- 3.1. Applying DCF to Fixed Income -- 3.2. The Building Block Approach to Fixed-Income Returns -- 3.3. Risks in Emerging Market Bonds -- 4. Forecasting Equity Returns -- 4.1. Historical Statistics Approach to Equity Returns -- 4.2. DCF Approach to Equity Returns -- 4.3. Risk Premium Approaches to Equity Returns -- 4.4. Risks in Emerging Market Equities -- 5. Forecasting Real Estate Returns -- 5.1. Historical Real Estate Returns -- 5.2. Real Estate Cycles -- 5.3. Capitalization Rates -- 5.4. The Risk Premium Perspective on Real Estate Expected Return -- 5.5. Real Estate in Equilibrium -- 5.6. Public vs. Private Real Estate -- 5.7. Long-Term Housing Returns -- 6. Forecasting Exchange Rates -- 6.1. Focus on Goods and Services, Trade, and the Current Account -- 6.2. Focus on Capital Flows -- 7. Forecasting Volatility -- 7.1. Estimating a Constant VCV Matrix with Sample Statistics -- 7.2. VCV Matrices from Multi-Factor Models -- 7.3. Shrinkage Estimation of VCV Matrices -- 7.4. Estimating Volatility from Smoothed Returns -- 7.5. Time-Varying Volatility: ARCH Models -- 8. Adjusting a Global Portfolio -- 8.1. Macro-Based Recommendations -- 8.2. Quantifying the Views -- Summary -- References -- Practice Problems -- Chapter 5: Overview of Asset Allocation -- Learning Outcomes -- 1. Introduction -- 2. Asset Allocation: Importance in Investment Management.
3. The Investment Governance Background to Asset Allocation -- 3.1. Governance Structures -- 3.2. Articulating Investment Objectives -- 3.3. Allocation of Rights and Responsibilities -- 3.4. Investment Policy Statement -- 3.5. Asset Allocation and Rebalancing Policy -- 3.6. Reporting Framework -- 3.7. The Governance Audit -- 4. The Economic Balance Sheet and Asset Allocation -- 5. Approaches to Asset Allocation -- 5.1. Relevant Objectives -- 5.2. Relevant Risk Concepts -- 5.3. Modeling Asset Class Risk -- 6. Strategic Asset Allocation -- 6.1. Asset Only -- 6.2. Liability Relative -- 6.3. Goals Based -- 7. Implementation Choices -- 7.1. Passive/Active Management of Asset Class Weights -- 7.2. Passive/Active Management of Allocations to Asset Classes -- 7.3. Risk Budgeting Perspectives in Asset Allocation and Implementation -- 8. Rebalancing: Strategic Considerations -- 8.1. A Framework for Rebalancing -- 8.2. Strategic Considerations in Rebalancing -- 9. Summary -- References -- Practice Problems -- Chapter 6: Principles of Asset Allocation -- Learning Outcomes -- 1. Introduction -- 2. Developing Asset Only Asset Allocations -- 2.1. Mean-Variance Optimization: Overview -- 2.2. Monte Carlo Simulation -- 2.3. Criticisms of Mean-Variance Optimization -- 2.4. Addressing the Criticisms of Mean-Variance Optimization -- 2.5. Allocating to Less Liquid Asset Classes -- 2.6. Risk Budgeting -- 2.7. Factor-Based Asset Allocation -- 3. Developing Liability-Relative Asset Allocations -- 3.1. Characterizing the Liabilities -- 3.2. Approaches to Liability-Relative Asset Allocation -- 3.3. Examining the Robustness of Asset Allocation Alternatives -- 3.4. Factor Modeling in Liability-Relative Approaches -- 4. Developing Goals-Based Asset Allocations -- 4.1. The Goals-Based Asset Allocation Process -- 4.2. Describing Client Goals -- 4.3. Constructing Sub-Portfolios.
4.4. The Overall Portfolio -- 4.5. Revisiting the Module Process in Detail -- 4.6. Periodically Revisiting the Overall Asset Allocation -- 4.7. Issues Related to Goals-Based Asset Allocation -- 5. Heuristics and Other Approaches to Asset Allocation -- 5.1. The "120 minus your age" rule -- 5.2. The 60/40 stock/bond heuristic -- 5.3. The endowment model -- 5.4. Risk parity -- 5.5. The 1/N rule -- 6. Portfolio Rebalancing in Practice -- 7. Conclusions -- References -- Practice Problems -- Chapter 7: Asset Allocation with Real-World Constraints -- Learning Outcomes -- 1. Introduction -- 2. Constraints in Asset Allocation -- 2.1. Asset Size -- 2.2. Liquidity -- 2.3. Time Horizon -- 2.4. Regulatory and Other External Constraints -- 3. Asset Allocation for the Taxable Investor -- 3.1. After-Tax Portfolio Optimization -- 3.2. Taxes and Portfolio Rebalancing -- 3.3. Strategies to Reduce Tax Impact -- 4. Revising the Strategic Asset Allocation -- 4.1. Goals -- 5. Short-Term Shifts in Asset Allocation -- 5.1. Discretionary TAA -- 5.2. Systematic TAA -- 6. Dealing with Behavioral Biases in Asset Allocation -- 6.1. Loss Aversion -- 6.2. Illusion of Control -- 6.3. Mental Accounting -- 6.4. Representativeness Bias -- 6.5. Framing Bias -- 6.6. Availability Bias -- 7. Summary -- References -- Practice Problems -- Chapter 8: Currency Management: An Introduction -- Learning Outcomes -- 1. Introduction -- 2. Review of Foreign Exchange Concepts -- 2.1. Spot Markets -- 2.2. Forward Markets -- 2.3. FX Swap Markets -- 2.4. Currency Options -- 3. Currency Risk and Portfolio Return and Risk -- 3.1. Return Decomposition -- 3.2. Volatility Decomposition -- 4. Currency Management: Strategic Decisions -- 4.1. The Investment Policy Statement -- 4.2. The Portfolio Optimization Problem -- 4.3. Choice of Currency Exposures.
4.4. Locating the Portfolio Along the Currency Risk Spectrum -- 4.5. Formulating a Client-Appropriate Currency Management Program -- 5. Currency Management: Tactical Decisions -- 5.1. Active Currency Management Based on Economic Fundamentals -- 5.2. Active Currency Management Based on Technical Analysis -- 5.3. Active Currency Management Based on the Carry Trade -- 5.4. Active Currency Management Based on Volatility Trading -- 6. Tools of Currency Management -- 6.1. Forward Contracts -- 6.2. Currency Options -- 6.3. Strategies to Reduce Hedging Costs and Modify a Portfolio's Risk Profile -- 6.4. Hedging Multiple Foreign Currencies -- 6.5. Basic Intuitions for Using Currency Management Tools -- 7. Currency Management for Emerging Market Currencies -- 7.1. Special Considerations in Managing Emerging Market Currency Exposures -- 7.2. Non-Deliverable Forwards -- 8. Summary -- References -- Practice Problems -- Chapter 9: Overview of Fixed-Income Portfolio Management -- Learning Outcomes -- 1. Introduction -- 2. Roles of Fixed-Income Securities in Portfolios -- 2.1. Diversification Benefits -- 2.2. Benefits of Regular Cash Flows -- 2.3. Inflation Hedging Potential -- 3. Fixed-Income Mandates -- 3.1. Liability-Based Mandates -- 3.2. Total Return Mandates -- 4. Bond Market Liquidity -- 4.1. Liquidity among Bond Market Sub-Sectors -- 4.2. The Effects of Liquidity on Fixed-Income Portfolio Management -- 5. A Model for Fixed-Income Returns -- 5.1. Decomposing Expected Returns -- 5.2. Estimation of the Inputs -- 5.3. Limitations of the Expected Return Decomposition -- 6. Leverage -- 6.1. Using Leverage -- 6.2. Methods for Leveraging Fixed-Income Portfolios -- 6.3. Risks of Leverage -- 7. Fixed-Income Portfolio Taxation -- 7.1. Principles of Fixed-Income Taxation -- 7.2. Investment Vehicles and Taxes -- 8. Summary -- References -- Practice Problems.
Chapter 10: Liability-Driven and Index-Based Strategies.
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Cover -- Portfolio Management In Practice Volume 1 -- Title Page -- Copyright -- Contents -- Preface -- Acknowledgments -- About the CFA Institute Investment Series -- Chapter 1: Professionalism in the Investment Industry -- Learning Outcomes -- 1. Introduction -- 2. Professions -- 2.1. How Professions Establish Trust -- 2.2. Professions Are Evolving -- 3. Professionalism in Investment Management -- 3.1. Trust in the Investment Industry -- 3.2. CFA Institute as an Investment Professional Body -- 4. Expectations of Investment Professionals -- 5. Framework for Ethical Decision-Making -- 5.1. Description of the Framework -- 6. Challenges for Investment Professionals -- 7. Summary -- References -- Practice Problems -- Chapter 2: Fintech in Investment Management -- Learning Outcomes -- 1. Introduction -- 2. What is Fintech? -- 3. Big Data -- 3.1. Sources of Big Data -- 3.2. Big Data Challenges -- 4. Advanced Analytical Tools: Artificial Intelligence and Machine Learning -- 4.1. Types of Machine Learning -- 5. Data Science: Extracting Information from Big Data -- 5.1. Data Processing Methods -- 5.2. Data Visualization -- 6. Selected Applications of Fintech to Investment Management -- 6.1. Text Analytics and Natural Language Processing -- 6.2. Robo-Advisory Services -- 6.3. Risk Analysis -- 6.4. Algorithmic Trading -- 7. Distributed Ledger Technology -- 7.1. Permissioned and Permissionless Networks -- 7.2. Applications of Distributed Ledger Technology to Investment Management -- Summary -- Practice Problems -- Chapter 3: Capital Market Expectations, Part 1: Framework and Macro Considerations -- Learning Outcomes -- 1. Introduction -- 2. Framework and Challenges -- 2.1. A Framework for Developing Capital Market Expectations -- 2.2. Challenges in Forecasting -- 3. Economic and Market Analysis -- 3.1. The Role of Economic Analysis.

3.2. Analysis of Economic Growth -- 3.3. Approaches to Economic Forecasting -- 3.4. Business Cycle Analysis -- 3.5. Analysis of Monetary and Fiscal Policy -- 3.6. International Interactions -- 4. Summary -- References -- Practice Problems -- Chapter 4: Capital Market Expectations, Part 2: Forecasting Asset Class Returns -- Learning Outcomes -- 1. Introduction -- 2. Overview of Tools and Approaches -- 2.1. The Nature of the Problem -- 2.2. Approaches to Forecasting -- 3. Forecasting Fixed-Income Returns -- 3.1. Applying DCF to Fixed Income -- 3.2. The Building Block Approach to Fixed-Income Returns -- 3.3. Risks in Emerging Market Bonds -- 4. Forecasting Equity Returns -- 4.1. Historical Statistics Approach to Equity Returns -- 4.2. DCF Approach to Equity Returns -- 4.3. Risk Premium Approaches to Equity Returns -- 4.4. Risks in Emerging Market Equities -- 5. Forecasting Real Estate Returns -- 5.1. Historical Real Estate Returns -- 5.2. Real Estate Cycles -- 5.3. Capitalization Rates -- 5.4. The Risk Premium Perspective on Real Estate Expected Return -- 5.5. Real Estate in Equilibrium -- 5.6. Public vs. Private Real Estate -- 5.7. Long-Term Housing Returns -- 6. Forecasting Exchange Rates -- 6.1. Focus on Goods and Services, Trade, and the Current Account -- 6.2. Focus on Capital Flows -- 7. Forecasting Volatility -- 7.1. Estimating a Constant VCV Matrix with Sample Statistics -- 7.2. VCV Matrices from Multi-Factor Models -- 7.3. Shrinkage Estimation of VCV Matrices -- 7.4. Estimating Volatility from Smoothed Returns -- 7.5. Time-Varying Volatility: ARCH Models -- 8. Adjusting a Global Portfolio -- 8.1. Macro-Based Recommendations -- 8.2. Quantifying the Views -- Summary -- References -- Practice Problems -- Chapter 5: Overview of Asset Allocation -- Learning Outcomes -- 1. Introduction -- 2. Asset Allocation: Importance in Investment Management.

3. The Investment Governance Background to Asset Allocation -- 3.1. Governance Structures -- 3.2. Articulating Investment Objectives -- 3.3. Allocation of Rights and Responsibilities -- 3.4. Investment Policy Statement -- 3.5. Asset Allocation and Rebalancing Policy -- 3.6. Reporting Framework -- 3.7. The Governance Audit -- 4. The Economic Balance Sheet and Asset Allocation -- 5. Approaches to Asset Allocation -- 5.1. Relevant Objectives -- 5.2. Relevant Risk Concepts -- 5.3. Modeling Asset Class Risk -- 6. Strategic Asset Allocation -- 6.1. Asset Only -- 6.2. Liability Relative -- 6.3. Goals Based -- 7. Implementation Choices -- 7.1. Passive/Active Management of Asset Class Weights -- 7.2. Passive/Active Management of Allocations to Asset Classes -- 7.3. Risk Budgeting Perspectives in Asset Allocation and Implementation -- 8. Rebalancing: Strategic Considerations -- 8.1. A Framework for Rebalancing -- 8.2. Strategic Considerations in Rebalancing -- 9. Summary -- References -- Practice Problems -- Chapter 6: Principles of Asset Allocation -- Learning Outcomes -- 1. Introduction -- 2. Developing Asset Only Asset Allocations -- 2.1. Mean-Variance Optimization: Overview -- 2.2. Monte Carlo Simulation -- 2.3. Criticisms of Mean-Variance Optimization -- 2.4. Addressing the Criticisms of Mean-Variance Optimization -- 2.5. Allocating to Less Liquid Asset Classes -- 2.6. Risk Budgeting -- 2.7. Factor-Based Asset Allocation -- 3. Developing Liability-Relative Asset Allocations -- 3.1. Characterizing the Liabilities -- 3.2. Approaches to Liability-Relative Asset Allocation -- 3.3. Examining the Robustness of Asset Allocation Alternatives -- 3.4. Factor Modeling in Liability-Relative Approaches -- 4. Developing Goals-Based Asset Allocations -- 4.1. The Goals-Based Asset Allocation Process -- 4.2. Describing Client Goals -- 4.3. Constructing Sub-Portfolios.

4.4. The Overall Portfolio -- 4.5. Revisiting the Module Process in Detail -- 4.6. Periodically Revisiting the Overall Asset Allocation -- 4.7. Issues Related to Goals-Based Asset Allocation -- 5. Heuristics and Other Approaches to Asset Allocation -- 5.1. The "120 minus your age" rule -- 5.2. The 60/40 stock/bond heuristic -- 5.3. The endowment model -- 5.4. Risk parity -- 5.5. The 1/N rule -- 6. Portfolio Rebalancing in Practice -- 7. Conclusions -- References -- Practice Problems -- Chapter 7: Asset Allocation with Real-World Constraints -- Learning Outcomes -- 1. Introduction -- 2. Constraints in Asset Allocation -- 2.1. Asset Size -- 2.2. Liquidity -- 2.3. Time Horizon -- 2.4. Regulatory and Other External Constraints -- 3. Asset Allocation for the Taxable Investor -- 3.1. After-Tax Portfolio Optimization -- 3.2. Taxes and Portfolio Rebalancing -- 3.3. Strategies to Reduce Tax Impact -- 4. Revising the Strategic Asset Allocation -- 4.1. Goals -- 5. Short-Term Shifts in Asset Allocation -- 5.1. Discretionary TAA -- 5.2. Systematic TAA -- 6. Dealing with Behavioral Biases in Asset Allocation -- 6.1. Loss Aversion -- 6.2. Illusion of Control -- 6.3. Mental Accounting -- 6.4. Representativeness Bias -- 6.5. Framing Bias -- 6.6. Availability Bias -- 7. Summary -- References -- Practice Problems -- Chapter 8: Currency Management: An Introduction -- Learning Outcomes -- 1. Introduction -- 2. Review of Foreign Exchange Concepts -- 2.1. Spot Markets -- 2.2. Forward Markets -- 2.3. FX Swap Markets -- 2.4. Currency Options -- 3. Currency Risk and Portfolio Return and Risk -- 3.1. Return Decomposition -- 3.2. Volatility Decomposition -- 4. Currency Management: Strategic Decisions -- 4.1. The Investment Policy Statement -- 4.2. The Portfolio Optimization Problem -- 4.3. Choice of Currency Exposures.

4.4. Locating the Portfolio Along the Currency Risk Spectrum -- 4.5. Formulating a Client-Appropriate Currency Management Program -- 5. Currency Management: Tactical Decisions -- 5.1. Active Currency Management Based on Economic Fundamentals -- 5.2. Active Currency Management Based on Technical Analysis -- 5.3. Active Currency Management Based on the Carry Trade -- 5.4. Active Currency Management Based on Volatility Trading -- 6. Tools of Currency Management -- 6.1. Forward Contracts -- 6.2. Currency Options -- 6.3. Strategies to Reduce Hedging Costs and Modify a Portfolio's Risk Profile -- 6.4. Hedging Multiple Foreign Currencies -- 6.5. Basic Intuitions for Using Currency Management Tools -- 7. Currency Management for Emerging Market Currencies -- 7.1. Special Considerations in Managing Emerging Market Currency Exposures -- 7.2. Non-Deliverable Forwards -- 8. Summary -- References -- Practice Problems -- Chapter 9: Overview of Fixed-Income Portfolio Management -- Learning Outcomes -- 1. Introduction -- 2. Roles of Fixed-Income Securities in Portfolios -- 2.1. Diversification Benefits -- 2.2. Benefits of Regular Cash Flows -- 2.3. Inflation Hedging Potential -- 3. Fixed-Income Mandates -- 3.1. Liability-Based Mandates -- 3.2. Total Return Mandates -- 4. Bond Market Liquidity -- 4.1. Liquidity among Bond Market Sub-Sectors -- 4.2. The Effects of Liquidity on Fixed-Income Portfolio Management -- 5. A Model for Fixed-Income Returns -- 5.1. Decomposing Expected Returns -- 5.2. Estimation of the Inputs -- 5.3. Limitations of the Expected Return Decomposition -- 6. Leverage -- 6.1. Using Leverage -- 6.2. Methods for Leveraging Fixed-Income Portfolios -- 6.3. Risks of Leverage -- 7. Fixed-Income Portfolio Taxation -- 7.1. Principles of Fixed-Income Taxation -- 7.2. Investment Vehicles and Taxes -- 8. Summary -- References -- Practice Problems.

Chapter 10: Liability-Driven and Index-Based Strategies.

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