2.
2 ARTICLES
ARTICLE:1
TITLE : THE DESCRIPTION OF PORTFOLIOS
AUTHOUR:Richard Grinold
PUBLISHING YEAR :2004
ABSTRACT :Grinold provides a general framework for the description of various aspects of
a portfolio using a set of factors. The work is cousin to the well – worn topic of performance
analysis and attribution, and in that sense, is fairly represented as being old wine in new
bottles the scope is much more general, however. Grinold first provides a theoretical structure
with a model that describes various aspects of a portfolio as either the allocation of a
portfolio’s variance or as the results in terms of the risk and correlation of portfolios. The
expanded framework and portfolio focus opens up a wide range of problems that can be
studied with the same framework. Grinold uses exampled to illustrate what the methodology
can accomplish and as a guide to sense when we are asking too much from the model.
ARTICLE :2
TLITE : MINIMUM – VARIANCE PORTFOLIO COMPOSITION
AUTHOUR :Roger Clarke, Harindra de Silva and Steven Thorley
PUBLISHING YEAR :2001
ABSTRACT :Empirical studies document that equity portfolios constructed to have the
lowest possible risk have surprisingly high average returns. Roger Clarke, Harindra de Silva
and Steven Thorley derive an analytic solution for the long – only Minimum – variance
portfolio under the assumption of a single - factor covariance matrix. The equation for the
optimal security weights has a simple and intuitive form that provides several insights on
minimum – variance portfolio composition. While high idiosyncratic risk can lead to a low
security weights, high systematic risk takes the large majority of investable securities out of
long – only solutions. The relatively small set of securities that remains has market betas
below an analytically specified threshold beta.
ARTICLE: 3
TITLE : POLICY PORTFOLIOS AND REBALANCING BEHAVIOR
AUTHOR : Martin L. Leibowitz and Anthony Bova
PUBLISHING YEAR :2006
ABSTRACT:An institutional fund typically has a multi – asset allocation the policy portfolio
that is maintained over time. When allocation shifts, the fund rebalances back to the policy
portfolio. The discipline of the policy portfolio has many benefits: simplicity, convenient
benchmarking, and a minimum of organizational frictions. It’s very routine nature can lead,
however, to an overemphasis on relative returns and insensitivity to fundamental changes in
fund status and market structure. In 2004, the late Peter Bernstein questioned whether rigid
adherence to the policy portfolio made sense, given frequent market dislocations and high
levels of volatility. In this article, Leibowitz and Bova attempt to shed further light on the
Bernstein question by analyzing the risk tolerance and return assumption of a basic two –
asset fund.
ARTICLE: 4
TITLE : CAPITAL ASSET PRICING MODEL (CAPM)
AUTHOUR: Markowitz, William Sharpe, John Lintner
ABSTRACT:The basic structure of Capital Asset Pricing Model. It is a model of linear
general equilibrium return. In the CAPM theory, the required rate return of an asset is having
a linear relationship with asset‘s beta value i.e. undiversifiable or systematic risk (i.e. market
related risk) because non market risk can be eliminated by diversification and systematic risk
measured by beta. Therefore, the relationship between an assets return and its systematic risk
can be expressed by the CAPM, which is also called the Security Market Line.
Rp = RfXf+ Rm(1- Xf)
Rp = Portfolio return
Xf = The proportion of funds invested in risk free assets
1- Xf = The proportion of funds invested in risky assets
Rf = Risk free rate of return
Rm = Return on risky assets
ARTICLE:5
TITLE : IMPORTANCE OF PORTFOLIO MANAGEMENT
AUTHOUR: Pavan Kumar Manthaand SrinivasaRao M
ABSTRACT:Portfolio management has emerged as a separate academic discipline in India.
Portfolio theory that deals with the rational investment decision-making process has now
become an integral part of financial literature. Investing in securities such as shares,
debentures & bonds is profitable well as exciting. It is indeed rewarding but involves a great
deal of risk & need artistic skill. Investing in financial securities is now considered to be one
of the most risky avenues of investment. It is rare to find investors investing their entire
savings in a single security. Instead, they tend to invest in a group of securities. Such group of
securities is called as PORTFOLIO. Creation of portfolio helps to reduce risk without
sacrificing returns. Portfolio management deals with the analysis of individual securities as
well as with the theory and practice of optimally combining securities into portfolios
LITERATURE REVIEW
PORTFOLIO MANAGEMENT
1. Specification and qualification of investor objectives, constraints, and preferences in
the form of an investment policy statement.
2. Determination and qualification of capital market expectations for the economy,
market sectors, industries and individual securities.
3. Allocation of assets and determination of appropriate portfolio strategies for each
asset class and selection of individual securities.
4. Performance measurement and evaluation to ensure attainment of investor objectives.
5. Monitoring portfolio factors and responding to changes in investor objectives,
constrains and / or capital market expectations.
6. Rebalancing the portfolio when necessary by repeating the asset allocation, portfolio
strategy and security selection.
CRITERIA FOR PORTFOLIO DECISIONS
1. In portfolio management emphasis is put on identifying the collective importance of
all investor’s holdings. The emphasis shifts from individual assets selection to a more
balanced emphasis on diversification and risk-return interrelationships of individual
assets within the portfolio. Individual securities are important only to the extent they
affect the aggregate portfolio. In short, all decisions should focus on the impact which
the decision will have on the aggregate portfolio of all the assets held.
2. Portfolio strategy should be molded to the unique needs and characteristics of the
portfolio‘s owner.
3. Diversification across securities will reduce a portfolio‘s risk. If the risk and return are
lower than the desired level, leverages (borrowing) can be used to achieve the desired
level.
4. Larger portfolio returns come only with larger portfolio risk. The most important
decision to make is the amount of risk which is acceptable.
5. The risk associated with a security type depends on when the investment will be
liquidated. Risk is reduced by selecting securities with a payoff close to when the
portfolio is to be liquidated.
6. Competition for abnormal returns is extensive, so one has to be careful in evaluating
the risk and return from securities. Imbalances do not last long and one has to act fast
to profit from exceptional opportunities.
7. Provides user interfaces that allow for the extraction of data based on user defined
parameters.
8. Provides a comprehensive set of tools to perform portfolio and risk evaluation against
parameters set within the risk framework.
9. Provides a set of tools to optimise portfolio value and risk position by:
10. Considering various legs of different contracts to create an optimal trading strategy.
11. The calculation of residual purchase requirements.
12. Performs analysis that provides the relevant information to create hedge and trade
plans.
13. Performs analysis on current and potential trades.
14. Evaluates the best mix of contracts on offer from counterparties to minimise the
overall purchase cost and maximize profits.
15. Creates and maintains trading and hedge strategies by:
16. Allocating trades to contracts and books.
17. Maintaining trades against contracts and books.
18. Reviewing trades against existing trading strategy.
19. Maintains an audit trail of decisions taken and query resolution.
20. Produces accurate and timely reports
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