The Theory of Active Portfolio Management推荐.docxVIP

Chapter27: The Theory of Active Portfolio ManagementChapter Openerp. 926THIS CHAPTER CONSIDERS the practical process of constructing optimal portfolios that an active portfolio manager can offer clients. It might seem that the word “theory” in the chapter title is inconsistent with this practical goal, and that the foregoing chapters must already have exhausted the knowledge that theorists can impart to those who practice portfolio management in the field—the rest would be up to the investment managers in the trenches.?We will see, however, that theory has a significant contribution to offer even when it comes to the daily grind of putting it all together. We begin with another look at the portfolio optimization procedure using the single-index model proposed by Treynor and Black, first presented in Chapter 8. We discuss practical problems that arise from the properties of the solution and how to effectively handle them. We discuss the critical issue of how to handle the limited accuracy of alpha forecasts when implementing the Treynor-Black model. Armed with these insights, we present a prototype organizational chart and discuss the efficacy of fitting the organization to the theoretical underpinning of portfolio management.?In the next section, we present the Black-Litterman model that allows flexible views about the expected returns of asset classes to improve asset allocation. Finally, we look into the potential profitability of security analysis and end with concluding remarks. An appendix to the chapter presents the mathematics underlying the Black-Litterman model.27.1 Optimal Portfolios and Alpha ValuesIn Chapter 8 we showed how to form an optimal risky portfolio with a single-index model. Table 27.1 summarizes the steps in this optimization, commonly known as the Treynor-Black model. The outlined procedure uses the index model that ignores nonzero covariance values across residuals. This is sometimes called the diagonal model, because it assumes that the cov