L2 Modern Portfolio Theory英文文献资料.pdfVIP

L2: Modern Portfolio Theory Advanced Investment Management Lent Term 2015 Dr. Chelsea Yao Noble-Prize-Winning Insights Harry Markowitz–“For having developed the theory of portfolio choice” (Nobel Prize:1990) William Sharpe–“For his contributions to the theory of price formation for financial assets, the so-called Capital Asset Pricing Model (CAPM)“ (Nobel Prize:1990) 2 Lecture Overview 1. Diversification and Portfolio Risk 2. Covariance and Correlation in Portfolio Construction 3. Minimum-variance Portfolio 4. Portfolio Opportunity Set 5. Efficient Frontier 6. Separation Property 3 Portfolio Construction • Portfolio construction generally has three steps: – Capital allocation between the risky portfolio and risk-free assets (what we did last lesson). • The optimal capital allocation depends on risk aversion and the risk-return trade-off of the optimal risky portfolio. – Asset allocation across wide asset classes (stocks, international stocks, long-term bonds). – Security selection. • In this lesson, we will examine the risky portfolio and discuss the power of diversification. 4 Diversification and Portfolio Risk • There are two main sources of risks in a portfolio: – Firm-specific risks – Economy (business cycle, inflation, interest rates, etc.) • Consider a portfolio that has only one stock: BT • Now consider another portfolio that has two stocks: BT and Sainsbury • With diversification (adding more securities to our portfolio), we can reduce our exposure to firm-specific risks (portfolio volatility is reduced). •