Frontmatter Page x Monday, March 8, 2004 10:06 AM
x ContentsCHAPTER 16
Portfolio Selection Using Mean-Variance Analysis 471
Diversification as a Central Theme in Finance 472
Markowitz’s Mean-Variance Analysis 474
Capital Market Line 477
Deriving the Capital Market Line 478
What is Portfolio M? 481
Risk Premium in the CML 482
The CML and the Optimal Portfolio 482
Utility Functions and Indifference Curves 482
Selection of the Optimal Portfolio 484
Extension of the Markowitz Mean-Variance Model to
Inequality Constraints 485
A Second Look at Portfolio Choice 487
The Return Forecast 487
The Utility Function 488
Optimizers 490
A Global Probabilistic Framework for Portfolio Selection 490
Relaxing the Assumption of Normality 491
Multiperiod Stochastic Optimization 492
Application to the Asset Allocation Decision 494
The Inputs 495
Portfolio Selection: An Example 500
Inclusion of More Asset Classes 503
Extensions of the Basic Asset Allocation Model 507
Summary 509
CHAPTER 17
Capital Asset Pricing Model 511
CAPM Assumptions 512
Systematic and Nonsystematic Risk 513
Security Market Line 516
Estimating the Characteristic Line 518
Testing The CAPM 518
Deriving the Empirical Analogue of the CML 518
Empricial Implications 519
General Findings of Empirical Tests of the CAPM 520
A Critique of Tests of the CAPM 520
Merton and Black Modifications of the CAPM 521
CAPM and Random Matrices 522
The Conditional CAPM 523
Beta, Beta Everywhere 524
The Role of the CAPM in Investment Management Applications 525
Summary 526
CHAPTER 18
Multifactor Models and Common Trends for Common Stocks 529
Multifactor Models 530
Determination of Factors 532