Chapter 17 Diversification and Asset Allocation：17章资产配置多元化和.ppt

Portfolio Theory Capital Market TheoryCapital Asset Pricing Model “Do not put all your eggs in one basket Expected Returns Expected return: average return on a risky asset expected in the future. Standard Deviation Standard deviation is calculated as: Example; Stock A gives average return 4% on the normal situation. During the crisis,Stock A plumped and generated negative return -2%. However,Stock A expected to generate return 10% on bullish economy. Given the possibility of crisis, normal, and bullish to be 30%,50%, and 20% respectively. What is the expected return and standard deviation (total risk) of stock A? E (R) = 0.30 x ( -2%) + 0.50 x (4%) + 0.20 x (10%) E (R) = 3.4% SDA = [0.3 x(-2 - 3.4)2 + 0.5 x(4 - 3.4)2 + 0.2x(10 – 3.4)2 ]0.5 SDA = 4.2% Calculation of Expected Return Calculation of Standard Deviation Portfolio Portfolio: Group of assets such as stocks and bonds held by an investor. Efficient portfolio : portfolio that maximize the expected return given a level of risk. Optimal portfolio : the most preferred efficient portfolio that an investor selects. Risk averse investor : with the same expected return but two different risks, he will prefer the lower risk. Portfolio Portfolio weights: Percentage of a portfolios total value invested in a particular asset. Portfolio expected returns: the weighted average combination of the expected returns of the assets in the portfolio. Portfolio Variance:it is the combination of the weighted average of the individual securitys variance and securities’ covariance factor. Portfolio Expected Returns Portfolio Risk Portfolio variance: Covariance and Correlation Relationship between covariance and correlation: Covariance and Correlation Calculating covariance and correlation : Example: Portfolio Return and Risk Feasible and Efficient Portfolios Feasible and Efficient Portfolios Markowitz Efficient Frontier Efficient Frontier: Set of portfolios with the maximum return for a given risk level. Data n