Portfolio management theory and practice

Table of Contents Cover About the Authors Acknowledgments Preface SUPPLEMENTS ENDNOTE CHAPTER 1: Introduction 1.1 INTRODUCTION TO THE INVESTMENT INDUSTRY 1.2 WHAT IS A PORTFOLIO MANAGER? 1.3 WHAT INVESTMENT PROBLEMS DO PORTFOLIO MANAGERS SEEK TO SOLVE? 1.4 SPECTRUM OF PORTFOLIO MANAGERS 1.5 LAYOUT OF THIS BOOK PROBLEMS ENDNOTES CHAPTER 2: Client Objectives for Diversified Portfolios 2.1 INTRODUCTION 2.2 DEFINITIONS OF RISK 2.3 THE PORTFOLIO MANAGEMENT PROCESS AND THE INVESTMENT POLICY STATEMENT 2.4 INSTITUTIONAL INVESTORS 2.5 INDIVIDUAL INVESTORS 2.6 ASSET CLASS PORTFOLIOS SUMMARY PROBLEMS ENDNOTES CHAPTER 3: Asset Allocation: The Mean - Variance Framework 3.1 INTRODUCTION: MOTIVATION OF THE MEAN–VARIANCE APPROACH TO ASSET ALLOCATION 3.2 THEORY: OUTLINE OF THE MEAN–VARIANCE FRAMEWORK 3.3 PRACTICE: SOLUTION OF STYLIZED PROBLEMS USING THE MEAN– VARIANCE FRAMEWORK SUMMARY PROBLEMS APPENDIX 1: RETURNS, COMPOUNDING, AND SAMPLE STATISTICS APPENDIX 2: OPTIMIZATION APPENDIX 3: NOTATION ENDNOTES CHAPTER 4: Asset Allocation Inputs 4.1 SENSITIVITY OF THE MEAN–VARIANCE MODEL TO INPUTS 4.2 CONSTANT INVESTMENT OPPORTUNITIES 4.3 TIME-VARYING INVESTMENT OPPORTUNITIES SUMMARY PROBLEMS APPENDIX: MIXED ESTIMATION WITH MULTIPLE ASSETS ENDNOTES CHAPTER 5: Advanced Topics in Asset Allocation 5.1 INTRODUCTION 5.2 HORIZON EFFECTS IN THE M-V FRAMEWORK 5.3 DYNAMIC PROGRAMMING 5.4 SIMULATION 5.5 ASSET ALLOCATION WITH ACTIVE MANAGERS 5.6 PORTFOLIO INSURANCE SUMMARY PROBLEMS APPENDIX 1: THE ESTIMATED VAR1 MODEL APPENDIX 2: DP SOLUTION OF THE MEAN REVERSION MODEL ENDNOTES CHAPTER 6: The Investment Management Process 6.1 INTRODUCTION 6.2 THE EFFICIENT MARKET HYPOTHESIS (EMH) 6.3 GENERAL DISCUSSION OF INVESTMENT STRATEGIES 6.4 THE FIVE KEY ELEMENTS OF THE INVESTMENT PROCESS 6.5 THE IMPORTANCE OF QUALITY CONTROL AND OTHER RECOMMENDATIONS 6.6 A SAMPLE INVESTMENT STRATEGY: THE SRY MODEL SUMMARY PROBLEMS ENDNOTES CHAPTER 7: Introduction to Equity Portfolio Investing: The Investor's View 7.1 INTRODUCTION 7.2 EQUITY STRATEGIES 7.3 SELECTING THE EQUITY MIX 7.4 ALTERNATIVE EQUITY MIXES 7.5 THE EQUITY MANAGEMENT BUSINESS 7.6 IMPLEMENTING THE EQUITY MIX 7.7 EQUITY PORTFOLIO INVESTMENT OBJECTIVES SUMMARY PROBLEMS ENDNOTES CHAPTER 8: Equity Portfolio Construction 8.1 INTRODUCTION 8.2 PASSIVE VERSUS ACTIVE MANAGEMENT 8.3 PASSIVE PORTFOLIO CONSTRUCTION 8.4 GOALS FOR ACTIVE MANAGEMENT 8.5 SECTOR MANAGEMENT 8.6 STYLE AND SECTOR MANAGEMENT 8.7 IDENTIFYING STYLE 8.8 SAMPLE ACTIVE PORTFOLIO SUMMARY PROBLEMS ENDNOTES CHAPTER 9: Fixed-Income Management 9.1 INTRODUCTION 9.2 FIXED-INCOME MARKETS, INSTRUMENTS, AND CONCEPTS 9.3 FIXED-INCOME MANDATES 9.4 PASSIVE MANAGEMENT 9.5 ACTIVE MANAGEMENT 9.6 STRUCTURED PORTFOLIOS SUMMARY PROBLEMS ENDNOTES CHAPTER 10: Global Investing 10.1 INTRODUCTION 10.2 INVESTING WITH A GLOBAL PERSPECTIVE 10.3 GLOBAL INVESTMENT OPPORTUNITIES 10.4 THE IMPACT OF CURRENCY 10.5 INTERNATIONAL DIVERSIFICATION: FAILURE TO DELIVER? 10.6 IMPLICATIONS OF GLOBALIZATION 10.7 CURRENCY OVERLAYS: INCENTIVE-COMPATIBLE PERFORMANCE EVALUATION SUMMARY PROBLEMS ENDNOTES CHAPTER 11: Alternative Investment Classes 11.1 INTRODUCTION 11.2 HEDGE FUNDS 11.3 VENTURE CAPITAL AND PRIVATE EQUITY 11.4 REAL ESTATE 11.5 COMMODITIES 11.6 ALTERNATIVES MANAGER SELECTION 11.7 ALLOCATING ASSETS INCLUDING ALTERNATIVES SUMMARY PROBLEMS APPENDIX: SOURCES FOR RETURN SERIES ENDNOTES CHAPTER 12: Portfolio Management Through Time: Taxes and Transaction Costs 12.1 INTRODUCTION 12.2 PERFORMANCE SHORTFALL 12.3 PORTFOLIO ADJUSTMENTS WITHOUT TAXES OR COSTS 12.4 TRANSACTION COSTS 12.5 TAXATION OF INVESTMENT RETURNS IN THE UNITED STATES 12.6 STRATEGIES TO REDUCE INDIVIDUAL INVESTOR TAXES 12.7 TAX MANAGING A PORTFOLIO OF SECURITIES SUMMARY PROBLEMS ENDNOTES CHAPTER 13: Performance Measurement and Attribution 13.1 INTRODUCTION 13.2 PERFORMANCE MEASUREMENT 13.3 PERFORMANCE ATTRIBUTION 13.4 PERFORMANCE APPRAISAL: INCENTIVE EFFECTS SUMMARY PROBLEMS APPENDIX: CALCULATION OF RISK MEASURES ENDNOTES CHAPTER 14: Incentives, Ethics, and Policy 14.1 INTRODUCTION 14.2 THE INVESTMENT COMPANY BUSINESS MODEL 14.3 INCENTIVES FOR BUSINESSPEOPLE AND PORTFOLIO MANAGERS 14.4 ETHICAL SITUATIONS 14.5 INDUSTRY GUIDELINES FOR GOOD BUSINESS PRACTICES 14.6 INTERNAL COMPANY POLICIES TO PROTECT THE FRANCHISE 14.7 EFFECTIVE MANAGER AND ANALYST COMPENSATION POLICIES SUMMARY PROBLEMS APPENDIX: SAMPLE LIST OF INVESTMENT POLICIES ENDNOTES CHAPTER 15: Investor and Client Behavior 15.1 INTRODUCTION 15.2 THEORY AND OBSERVATIONS OF HUMAN BEHAVIOR 15.3 IMPLICATIONS FOR ACTIVE MANAGEMENT 15.4 IMPLICATIONS FOR SETTING INVESTMENT POLICY 15.5 IMPLICATIONS FOR MANAGER SELECTION SUMMARY PROBLEMS ENDNOTES CHAPTER 16: Managing Client Relations 16.1 INTRODUCTION 16.2 GENERAL RECOMMENDATIONS FOR CLIENT MANAGEMENT 16.3 MEETING CLIENT NEEDS 16.4 MANAGER SELECTION PROCESS 16.5 SECURING NEW CLIENTS 16.6 RETAINING CLIENTS 16.7 CASE STUDY SUMMARY PROBLEMS ENDNOTES Sample Cases Jerry W PRIVATE WEALTH CASE: DESIGNING AN INVESTMENT PLAN FOR JERRY W APPENDICES INVESTOR QUESTIONNAIRE ENDNOTES MSSI DEFINED BENEFIT PLAN CASE: DESIGNING THE INVESTMENT STRUCTURE FOR MSSI CORPORATION'S DEFINED BENEFIT PLAN McClain Capital DEFINED CONTRIBUTION PLAN CASE: DESIGNING A CUSTOM DEFINED CONTRIBUTION PLAN The Fairbanks Fund FUND CASE: THE FAIRBANKS SMALL-CAP U.S EQUITY FUND WHITTIER WEALTH MANAGEMENT: FAIRBANKS SMALL-CAP EQUITY FUND Glossary References Index End User License Agreement List of Tables Chapter EXHIBIT 2.3 Ten Largest U.S Fou ndations EXHIBIT 2.4 Ten Largest U.S Endowments Chapter EXHIBIT 3.1 Historical Correlations: Monthly Gross Returns, 45 Years Ending EXHIBIT 3.2 Historical Returns: Annualized Gross, Ending 12/31/2016 EXHIBIT 3.3 Historical Standard Deviation: Annual Gross Returns, Ending Chapter EXHIBIT 4.1 95% Confidence Intervals for Expected Return EXHIBIT 4.2 95% Confidence Intervals for the Sample Standard Deviation EXHIBIT 4.3 James–Stein Estimation: Monthly Data 1985–2016 EXHIBIT 4.4 Decomposition of S&P 500 Returns: Log Returns 1946–2016 EXHIBIT 4.5 Implied Views EXHIBIT 4.7 Factor Model Exposures and Risk Premiums EXHIBIT 4.9 Election Cycle for S&P 500: Log Returns 1929–2016 EXHIBIT 4.10 Models of S&P 500: Annual Log Returns 1946–2016 Chapter EXHIBIT 5.8 Current Return versus Future Opportunities EXHIBIT 5.12 Impact of Cash Flows and Alternative Probability Distributions EXHIBIT 5.14 Mean-Lower Partial Moment Optimization EXHIBIT 5.15 Distribution of Portfolios from Statistically Equivalent Inputs Chapter EXHIBIT 6.1 The Investment Process: Signal-Based Decision Making EXHIBIT 6.2 Issues to Explore When Designing a Paper Portfolio EXHIBIT 6.3 Implementation: Liquidity, Value Added, and Capacity EXHIBIT 6.4 Feedback: Performance at Each Step EXHIBIT 6.6 Cycle of Asset Price Levels EXHIBIT 6.8 Tactical Asset Allocation Signal EXHIBIT 6.10 Sample Market Characteristics: Stock (SPY) and Bond (AGG) ETFs EXHIBIT 6.11 Representative Bid–Ask Spread and Market Impact Data: Stoc EXHIBIT 6.12 Representative Transaction Cost Data: SPY ETF Sample OneWay EXHIBIT 6.13 Simulation Results: Tactical Asset Allocation Strategy Chapter EXHIBIT 7.1 Russell Equity Style Indexes EXHIBIT 7.2 Historical Correlations: Gross Monthly Russell and EAFE Equity EXHIBIT 7.3 Annualized Historical Gross Returns: Russell and EAFE Equity Inde EXHIBIT 7.4 Historical Standard Deviation, Gross Annual Returns: Russell and EXHIBIT 7.5 Market Valuations: Percentages of Equity Market—U.S Equity EXHIBIT 7.8 Mean–Variance Alternative Portfolios: Equity Asset Classes EXHIBIT 7.9 Equity Asset Class Log Return Expectations (α): Historical EXHIBIT 7.10 Optimal Equity Mix (Maximized Risk–Return Trade-Off) Using EXHIBIT 7.11 Stress Test Results: Alternative Equity Mixes (Described in Exhi EXHIBIT 7.13 Comparing Portfolio Characteristics EXHIBIT 7.14 Sample Equity Mix: Mutual Fund EXHIBIT 7.15 Sample Equity Mix: Institutional Fund Chapter EXHIBIT 8.5 Lipper's U.S Equity Mutual Fund Classifications EXHIBIT 8.6 Sample Weighting Algorithm for a 25 Percent Weighted Sector EXHIBIT 8.8 Sample Portfolio Descriptive Statistics EXHIBIT 8.10 Sample Portfolio Listing: First Step Chapter EXHIBIT 9.2 Bond Market Statistics: Bloomberg Barclays Indexes, 12/29/2017 EXHIBIT 9.3 Correlation of Stocks and Bonds: Monthly Log Returns, January EXHIBIT 9.4 Stock and Bond Correlations with Realized Inflation: All Five-Yea EXHIBIT 9.5 Serial Correlation of Returns: January 1926–May 2017 EXHIBIT 9.7 Sample Fixed-Income Mandate: Teachers Retirement System of Texas EXHIBIT 9.8 Log Excess Returns on Bloomberg Barclays Corporate Indexes versus Chapter 10 EXHIBIT 10.2 Sector Composition: Industry Groups and Concentration Across EXHIBIT 10.4 Global Equity Markets: January 1996–March 2017 EXHIBIT 10.6 Composition of the Global Investment-Grade Bond Market (March EXHIBIT 10.7 Global Government Bond Markets: January 1998–April 2018 EXHIBIT 10.8 Returns with Alternative Currency Strategies EXHIBIT 10.9 Hedging a Risky Asset EXHIBIT 10.10 Conditional Correlation of Extreme Returns: Two Assets, 500 EXHIBIT 10.11 Diversification Benefits of International Equities: Structured EXHIBIT 10.12 The Principle of Invariance—Equivalent Positions (Each EXHIBIT 10.13 Conflict-of-Interest Example Chapter 11 EXHIBIT 11.3 Hedge Fund Styles and Strategies EXHIBIT 11.4 Hedge Fund Return Summary Statistics (Jan-98 to Jun-18) EXHIBIT 11.6 Comparison of Annualized PE and VC Standard Deviations (Quarter EXHIBIT 11.7 Estimate of Relationship Between VC and NASDAQ Returns EXHIBIT 11.8 Return and Volatility Results of Modeled VC Data EXHIBIT 11.10 Comparison of Real Estate Return Standard Deviations EXHIBIT 11.11 Sample List of Commodities, Traded on U.S Futures Exchanges EXHIBIT 11.12 Performance Characteristics of Commodity Futures EXHIBIT 11.13 Massachusetts Pension Reserves Investment Trust Fund EXHIBIT 11.14 Return Correlations of Common and Alternatives Asset Classes EXHIBIT 11.15 Sample Statistics of Monthly Returns on Common and Alternative EXHIBIT 11.16 Yale University Endowment Asset Allocation EXHIBIT 11.17 Historical Return Risk Analysis of Yale Endowment Allocation EXHIBIT 11.18 Value at Risk Analysis of Yale Endowment Allocation EXHIBIT 11.19 LPM Optimal Portfolio versus Yale Portfolio EXHIBIT 11.20 2008 Reported and Modeled Returns Chapter 12 EXHIBIT 12.2 Sources of Performance Shortfall EXHIBIT 12.3 Historic Trading Losses EXHIBIT 12.5 Representative Volume, Bid–Ask Spread, and Market Impact EXHIBIT 12.6 Sample One-Way $10 Million Trade in SPY, Price of $273 EXHIBIT 12.11 After-Tax Returns of Funds with Different Turnover Levels: Tota outperformance, 228 returns, decomposition, 128e SPDR, 526–527 total return index, 277 Standard & Poor's 500 (S&P 500) Depository Receipt (spider) (SPY), 241 ETF one way trade, sample, 246e ETF trades, 244 trading, impact, 244 usage, 245 Standard & Poor's 500 (S&P 500) dividend return, 129 yield, 130 Standard & Poor's 500 (S&P 500) index, 82, 93 decrease, 202 examination, 578 increase, 18 mutual fund, Vanguard offering, 286 return, 280e Standard & Poor's 600 (S&P 600) Index, 93 Standard & Poor's 600 (S&P 600) small cap index, 317 bid ask spread, 290 Standard variance, 72 State variables, 174 Static hedges, 386 Statistical analyses, usage, 63 Statistical notation required expenditures and alternative probability distributions, 193–195 resampled mean variance, 197–198 specialized objectives, 195–197 Statistics, sample, 105–108 Stein's paradox, 121 Stewart, Potter, 14 Stewart, Scott D., ix Stochastically changing investment opportunities, impact, 161 Stock allocation risk premium, impact, 189e tolerance, contrast, 165e Stock/bond indexes, fixed 60/40 mix, 222–223 Stock lending, 321 Stock market crash (1987), 231–233 return trend/reversal behavior, 579e valuations, concern, 232 Stock picking, 223, 259 Stock recommendation, 233, 304, 641 Stock returns bond returns, contrast, 238e empirical properties, 342–344 generation, 211 Weibull distribution, 195 Stocks attractiveness, 190 bonds, correlation, 342e, 343e dividends, 505 indexes, correlation, 260 nominal returns, 343–344 options, employee compensation, 129 picker, goal, 255 prices, decline, 232 real excess return, 210 relative valuation, 239e stock picking strategies, 223 target investment, 204 Storage, theory, 449 Strategic asset allocation, 18, 60, 601 Strategic funds (FoF strategy), 439 Stratification, function, 378 Stratified sample, creation, 293, 308 Stress testing allocations, 268 Stress test results, 269e Strong form efficiency, 220, 221 Structural groups, 451 Structural sources, 452–453 of alpha, 452, 453 Structure bets, 357 Structured active disciplines, 601 Structured active management, 257 Structured active small cap equity product, 234–235 Structured active strategies, 256–259 Structured management, active management (contrast), 412e Structured mandate, 345 Structured notes, 229 Structured portfolios, 369–379 Style analysis, 523–525 bets, 225 constrained style analysis, 525e rotation, 257 unconstrained style analysis, 524e Style identification, 312–317 Outbox example, 314–317 Style neutral, 257 Stylized problems (solution), Mean variance (M V) framework (usage), 79–99 Suboptimality cost, 483 Sub period returns, compounding, 511 Subprime loans, 327 Subprime mortgages, 369 Success, measurement, 630, 643–644 Sunk cost fallacy, 574 Surplus, 97 Survivor bias, 235–236 Survivorship bias, 437 Swap curve, 339 Swap spreads, 339 Swaption, purchase, 379 Systematic risk, 17, 513 compensation, 131–132 Tactical allocation avoidance, 62 change, 247 Tactical asset allocation (TAA), 60 exposure, shift, 601 probabilistic TAA strategy, 227 signal, 240e strategies, 226–227, 247e, 250e Taft–Hartley plans, 554 Target date funds, 39 Target horizon fund, design, 183 Target portfolios, transaction costs (relationship), 486–487 Target return, 85–87 Target risk constraints, 277 TARP See Troubled Asset Relief Program Taxes, 467 constraints, 388 DB plans, 35 IPS constraint, 20, 26 tax deferred accounts, 493 tax exempt securities, 493 Tax lots, 493 TBA See To be announced Teachers Retirement System of Texas (TRS) fixed income mandate, sample, 355e fixed income portfolio guidelines, 354 Technology bubble, impact, 44, 128, 129 Telephone orders, restriction, 291 Telerate, usage, 239 Terminated plans, usage, 34 Term structure, 331 movements, 333–335 Thaler, Richard, 577 Theory of storage, 449 Third Avenue Management, high yield bond mutual fund liquidation, 434 Third party marketing, 606 Third party services, 553 TIAA CREF, 45 Tilt, 223 Time horizons, 277, 639 calculations, 354 constraints, 388 IPS constraint, 20 Time series model, 147 Time varying investment opportunities, 142–150 detrended year log returns, 149e Time weighted returns, 510 TIPS See Treasury Inflation Protected Securities To be announced (TBA) contracts, 348 Top down approach, 454 Total client assets, 46e Total cost, 484, 484e Total holding period return (total HPR), 105 Total return, 508–510 focus, mandate, 345 risk, concern, 59 Total risk, 17, 513–514 increase, 78 Total stock allocation, 190 Total variation of asset returns, 136 Total worldwide assets under management, 2e T period horizon, 163 Tracking error, 245 correspondence, 354 tracking, 261 Tracking tolerance cash matching, 369–370 contingent immunization, 377 Tracking risk, 257 Trade allocations, 551 errors, 472–473 list, creation, 227 policy, 558–559 Trading costs, 64, 486 historic trading losses, 474e–475e personal trading policy, 559 procedures, 454 Trading errors immunization, 370–372 Trading losses drift, 378 management, 378 matching additional risk measures, 377–379 neutral, 226, 257 Trailer, 563 Tranches, 328 Transaction costs, 229, 467, 477–488, 603 components, 477–480 data, 246e estimation, 480–482 evaluation, 231 inclusion, 245 increase, 230, 478, 487e incurring, 479 target portfolios, relationship, 486–487 treatment, 496–497 usage, 483–486 Transaction fees, 291 Treasuries, 325–326 Treasury bills (T bills), 93, 174 futures price, present value, 449 investment, allowance, 525 nominal T bill returns, annualized standard deviations, 175 rate, 146 real T bill returns, volatilities, 176 Treasury bond (T bond), 325 index, 82 yield to maturity, 331 Treasury debt, issuance, 328 Treasury Inflation Protected Securities (TIPS), 174, 489 Treasury market, liquidity (concentration), 362 Treynor, Jack, 477 Treynor ratio, 521–523, 521e Troubled Asset Relief Program (TARP), 366 T Rowe Price, 45 glidepaths, 63 T Rowe Price Group, annual report, 545, 545e TRS See Teachers Retirement System of Texas Trust, 41 Trust accounts enhancing after tax returns, 490–493 general recommendations for, 594–596 individual investor taxes, 490–494 investment policy statement, 18–23 investment returns and, 488–489 portfolio management and, 492 Trust banks, Turnover, 493 levels, funds (after tax returns), 491e low turnover strategies, 493 value added, contrast, 488 Tversky, Amos, 577 12b fees, 545 Twist, 333, 361, 373 Two asset class problem, development, 79 Ultra high net worth individuals, 44 Uncertain returns, hedging, 405–407 Uncertainty, source, 173 Unconditional correlations, 410, 411 Unconditional mean, 143 Unconditional parameters, meeting, 145 Unconditional variance, 147 conditional parameter, relationship, 144 Unconditional volatility, 145 Unconstrained style analysis, 524e Underperformance, benchmarks (contrast), 272 Undoing Project, The (Lewis), 577 Unhedged returns, 399, 400 Uniform Management of Institutional Funds Act (UMIFA), 26, 33 Unique circumstances, IPS constraint, 20, 26 United Auto Workers, 57 Unit trusts, 269 Unrealistic expectations, 608 Unrelated Business Income, 26 Unsecured debt, 365 Unsystematic risk, 17 Up market, 45 Upper confidence bound, increase, 98 U.S bond market, 324–329 U.S Deprtment of Labor (DOL), 271 U.S equity funds, Lipper Analytical Services classification, 303 U.S equity mutual funds, Lipper Analytical Services classification, 304e U.S Federal Reserve, rates assessmesnt, 357 U.S government agencies, 325–326 U.S government agency debt, 325 U.S Investment Company Act of 1940, 550 U.S taxable bond, composition, 325e Utility maximization, 184 positive values, 69 Utility function, 67 attention, 68–69 cost components, 477–480 estimation from portfolio returns, 480–482 example, 69–70 Utility theory, 66–69 Value, 264e function, 178, 179, 576–577 Value added, 230e turnover, contrast, 488 Value at Risk (VaR), 15, 457 forecast model, 236–237 meaning, 514 Value style equity managers, performance, 236 Value weighting, 233 Vanguard Balanced Index Fund, 222 Vanguard, indexed portfolio management, 37, 45 Vaporware firms, products (absence), 129 VAR See Vector autoregression VAR1 See Vector autoregression of order one Variable annuities fixed cost, 484 historical transaction costs, 479 proportional costs, 484–486 Variable constraints, 109 Variable investment horizon, usage, 91 Variables, importance, 545–546 Variance, 106, 410, 460 See also Mean variance rebalancing with, 483 turnover vs value add, 488 Variance covariance matrix calculation process, 135–136 estimation, 154–155 VC See Venture capital Vector autoregression (VAR), 342 Vector autoregression of order one (VAR1), 173–174 estimated VAR1 model, 209–210 Venture capital (VC) market value based returns, Outbox example, 443–444 performance record, 441–445 private equity, relationship, 439–445 standard deviations, comparison, 442e valuation guidelines, 441 Vesting, 31 Viaducto, 508, 509 Visium Asset Management, 452 Volatility, 14 trades, 563 Volume weighted price (VWAP), 480 VWAP See Volume weighted price Wall Street Journal dartboard portfolio, 517–518 Wash sale rule, 491 Weak form efficiency, 220, 221 Wealth case study, 619 creation, 40e current wealth, spending, 194 distributions, 387 drawdowns/confidence intervals, 98–99 growth, 76 level, 67–68, 187 log, drawdowns/confidence intervals, 98–99 minimum wealth level, impact, 190–191 preservation/transfer, 493–494 probability, 78–79 stocks, fraction, 191e Wealth management business, trends, 43–46 Wealth preservation and transfer, 493–494 Weibull distribution, 194–195 Weighted average market cap, constraints (impact), 301 Weighting algorithm, sample, 306 scheme, 517 Wellington Management, 548 Wells Fargo Bank, institutional investor alternative, 286 Wells Fargo, quantitative strategies, 223 Wilshire 5000 index, 262 Wire houses, World Economic Forum (WEF), retirement savings gap estimation, 36 World Trade Organization, 413 Worst case scenarios, 63 Wrap accounts, offering, Yale University endowment allocation, analysis, 459e, 460e asset allocation, 458e Yale University portfolio, LPM optimal portfolio (contrast), 461e Yield (yield spread), 329, 364 changes, 340 Yield curve positioning, 357 upward slope, 362 Yield to maturity, 329, 363 spreads, 331 Yield to worst (YTW), 238, 363 Zero beta CAPM model Excel example, 131 portfolio return and, 75 of returns, 136 risk averse utility, 67 Zero beta portfolios, 458–459 Zero coupon bonds, 174 single date liability, 371 valuation, 332 Zero sector skew, exposure, 306 WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA ... material and select the chapters and sections most pertinent to the course objectives Portfolio Management: Theory and Practice includes several features designed to reinforce understanding, connect... the capstone Portfolio Management course in the graduate programs in Investment Management at Boston University and Reykjavik University for over ten years, and advanced portfolio management courses... VERSUS ACTIVE MANAGEMENT 8.3 PASSIVE PORTFOLIO CONSTRUCTION 8.4 GOALS FOR ACTIVE MANAGEMENT 8.5 SECTOR MANAGEMENT 8.6 STYLE AND SECTOR MANAGEMENT 8.7 IDENTIFYING STYLE 8.8 SAMPLE ACTIVE PORTFOLIO