Portfolio Theory and Performance Analysis - Noel Amenc

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Résumé :

Acknowledgements x

Biographies xiii

Introduction 1

1 Presentation of the Portfolio Management Environment 3

1.1 The different categories of assets 3

1.1.1 Presentation of the different traditional asset classes 3

1.1.2 Alternative instruments 5

1.1.3 Grouping by sector 6

1.2 Definition of portfolio management 6

1.2.1 Passive investment management 6

1.2.2 Active investment management 8

1.3 Organisation of portfolio management and description of the investment management process 8

1.3.1 The different phases of the investment management process 9

1.3.2 The multi-style approach 9

1.3.3 Performance analysis 10

1.4 Performance analysis and market efficiency 12

1.4.1 Market efficiency 12

1.4.2 Performance persistence 13

1.5 Performance analysis and the AIMR standards 16

1.6 International investment: additional elements to be taken into account 20

1.7 Conclusion 22

Bibliography 22

2 The Basic Performance Analysis Concepts 25

2.1 Return calculation 25

2.1.1 Return on an asset 25

2.1.2 Portfolio return 27

2.1.3 International investment 33

2.1.4 Handling derivative instruments 38

2.1.5 The AIMR standards for calculating returns 40

2.2 Calculating relative return 43

2.2.1 Benchmarks 43

2.2.2. Peer groups 49

2.2.3. A new approach: Portfolio Opportunity Distributions 50

2.3 Definition of risk 51

2.3.1 Asset risk 52

2.3.2 Link between the variations in returns on two assets 54

2.3.3 Other statistical measures of risk 54

2.3.4 Risk indicators for fixed income investment 55

2.3.5 Foreign asset risk 55

2.3.6 The AIMR standards and risk 57

2.3.7 Generalisation of the notion of risk: Value-at-Risk 57

2.4 Estimation of parameters 63

2.4.1 Use of time-series 63

2.4.2 Scenario method 64

2.4.3 Forecast evaluation 64

2.5 Conclusion 66

Appendix 2.1 Calculating the portfolio return with the help of arithmetic and logarithmic asset returns 66

Appendix 2.2 Calculating the continuous geometric rate of return for the portfolio 67

Appendix 2.3 Stock exchange indices 68

Bibliography 74

3 The Basic Elements of Modern Portfolio Theory 77

3.1 Principles 77

3.1.1 Utility functions and indifference curves 78

3.1.2 Risk aversion 78

3.2 The Markowitz model 80

3.2.1 Formulation of the model 81

3.2.2 Choosing a particular portfolio on the efficient frontier 82

3.2.3 Impact of transaction costs when determining the optimal portfolio 83

3.2.4 International diversification and currency risk 83

3.3 Efficient frontier calculation algorithm 84

3.3.1 The Markowitz-Sharpe critical line algorithm 84

3.3.2 Other algorithms 85

3.4 Simplified portfolio modelling methods 85

3.4.1 Sharpe's single-index model 85

3.4.2 Multi-index models 87

3.4.3 Simplified methods proposed by Elton and Gruber 88

3.5 Conclusion 89

Appendix 3.1 Resolution of the Markowitz problem 90

Bibliography 93

4 The Capital Asset Pricing Model and its Application to Performance Measurement 95

4.1 The CAPM 95

4.1.1 Context in which the model was developed 95

4.1.2 Presentation of the CAPM 98

4.1.3 Modified versions of the CAPM 102

4.1.4 Conclusion 107

4.2 Applying the CAPM to performance measurement: single-index performance measurement indicators 108

4.2.1 The Treynor measure 108

4.2.2 The Sharpe measure 109

4.2.3 The Jensen measure 110

4.2.4 R...

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