1、Chapter 27 - The Theory of Active Portfolio Management27-1CHAPTER 27: THE THEORY OFACTIVE PORTFOLIO MANAGEMENTPROBLEM SETS1. Views about the relative performance of bonds compared to stocks can have a significant impact on how security analysis is conducted. For example, suppose that, as a result of
2、 a predicted decrease in interest rates, bonds are now expected to perform better than had previously been expected. In this scenario, the performance forecast may also reflect forecasts about the quality (credit) spreads for bonds. In addition to the implications of macro forecasts, the play on yie
3、lds can have important implications for corporations in financial distress that have high degrees of leverage. The hierarchy of use of the model suggests a top-down analysis, starting with the BL model inputs. This does not rule out feedback in the opposite direction if, for example, the preponderan
4、ce of security analysis suggests an unexpectedly good (or bad) economy (or sector of the economy).2. The specific tasks for the econometrics unit might entail the following:(1) Help the macro forecasters with their forecasts for asset allocation and in setting up views for the BL model.(2) Help the
5、Quality Control unit to estimate forecasting records.(3) Provide a resource to handle any problem of statistics that other units may encounter.3. Exercise left to student; answers will vary.4. Exercise left to student; answers will vary.5. To assign a dollar value to an improvement in performance, w
6、e would start with the expected value of M2. This is the expected incremental return (adjusted for risk) from active management. First, apply this incremental M2 to the dollar value of the portfolio over future periods, and, second, compute the present value of these dollar increments to determine t
7、he dollar value of the activity. Thus, we proceed to obtain the incremental M2 in a top-down manner. First we need to estimate the improvement in the Sharpe ratio. This comes as a result of an increase in the information ratio (IR) of the active portfolio.Chapter 27 - The Theory of Active Portfolio
8、Management27-2The activity envisioned in this problem amounts to an improvement in the forecasting accuracy of an analyst who examines a set number of securities. This limits the improvement of the overall IR to that of those securities. (Recall that the overall squared IR is the sum of squared IRs
9、of the individual securities.) Improved accuracy means we assign greater weight to the analysts forecasts. This constitutes an increment to the expected IR of the analyst. The expected IR of securities covered by the analyst (that may arise from either positive or negative alpha forecasts) may be obtained in two ways: (1) directly from the analysts past forecasts; or, (2) from estimates of the distribution of past abnormal returns of the stock in question. (Note that this could be another task for the econometrics unit, as discussed in Problem 2.)
