A through guide covering Modern Portfolio Theory as well as the
recent developments surrounding it

Modern portfolio theory (MPT), which originated with Harry
Markowitz's seminal paper "Portfolio Selection" in 1952, has stood
the test of time and continues to be the intellectual foundation
for real-world portfolio management. This book presents a
comprehensive picture of MPT in a manner that can be effectively
used by financial practitioners and understood by students.

Modern Portfolio Theory provides a summary of the
important findings from all of the financial research done since
MPT was created and presents all the MPT formulas and models using
one consistent set of mathematical symbols. Opening with an
informative introduction to the concepts of probability and utility
theory, it quickly moves on to discuss Markowitz's seminal work on
the topic with a thorough explanation of the underlying
mathematics.

* Analyzes portfolios of all sizes and types, shows how the
advanced findings and formulas are derived, and offers a concise
and comprehensive review of MPT literature

* Addresses logical extensions to Markowitz's work, including the
Capital Asset Pricing Model, Arbitrage Pricing Theory, portfolio
ranking models, and performance attribution

* Considers stock market developments like decimalization, high
frequency trading, and algorithmic trading, and reveals how they
align with MPT

* Companion Website contains Excel spreadsheets that allow you to
compute and graph Markowitz efficient frontiers with riskless and
risky assets

If you want to gain a complete understanding of modern portfolio
theory this is the book you need to read.

JACK CLARK FRANCIS is Professor of Economics and Finance at Bernard M. Baruch College in New York City. His research focuses on investments, banking, and monetary economics, and he has had dozens of articles published in many refereed academic, business, and government journals. Dr. Francis was an assistant professor of finance at the University of Pennsylvania's Wharton School of Finance for five years and was a Federal Reserve economist for two years. He received his bachelor's and MBA from Indiana University and earned his PhD in finance from the University of Washington in Seattle.

DONGCHEOL KIM is a Professor of Finance at Korea University in Seoul. He served as president of the Korea Securities Association and editor-in-chief of the Asia-Pacific Journal of Financial Studies. Previously, he was a finance professor at Rutgers University. Kim has published articles in Financial Management, the Accounting Review, Journal of Financial and Quantitative Analysis, Journal of Economic Research, Journal of Finance, and Journal of the Futures Market.

Klappentext

Modern portfolio theory (MPT), which was introduced by Harry Markowitz's seminal paper "Portfolio Selection" over sixty years ago, has stood the test of time. Both his original theory and extensions made to the model by Professors James Tobin and Bill Sharpe have won Nobel Prizes. Today, MPT has grown to impact portfolio managers, financial service organizations, individual investors, and the finance and economics classrooms of universities around the world.

Building on three previous editions of the book Portfolio Analysis, of which coauthor Jack Clark Francis was an integral part, Modern Portfolio Theory skillfully provides a concise review of portfolio theory and offers new insights. It can help busy finance professionals stay current on the theoretical developments in their field and allow students to gain a solid foundation in what MPT encompasses.

Divided into six comprehensive parts, this reliable resource addresses various aspects of portfolio analysis by tracing the contributions made by different people in the decades since MPT was created. Along the way, it also explores new developments that may make MPT more valuable than ever. Topics that are discussed in detail include:

• Probability foundations
• Utility analysis
• Mean-variance portfolio analysis
• Non-mean-variance portfolio analysis
• Asset pricing models
• Implementation of portfolio theory
• Portfolio performance evaluations

And while this book uses mathematical and statistical explanations in its coverage of models and other subjects, the material is presented in way that is understandable to a wide range of readers—from finance veterans to those just entering the field—and supplemented with graphs.

The coauthors have also created several Excel spreadsheets that compute Markowitz efficient frontiers under various assumptions and circumstances. This user-friendly software is available online and can be easily downloaded. In addition, resources for professors can be found on Wiley's Global Education website.

Engaging and accessible, Modern Portfolio Theory contains essential insights on this discipline and offers a comprehensive look at its foundations, evolution, and implementation in today's dynamic world of finance.

Zusammenfassung
A through guide covering Modern Portfolio Theory as well as the recent developments surrounding it

Modern portfolio theory (MPT), which originated with Harry Markowitz's seminal paper "Portfolio Selection" in 1952, has stood the test of time and continues to be the intellectual foundation for real-world portfolio management. This book presents a comprehensive picture of MPT in a manner that can be effectively used by financial practitioners and understood by students.

Modern Portfolio Theory provides a summary of the important findings from all of the financial research done since MPT was created and presents all the MPT formulas and models using one consistent set of mathematical symbols. Opening with an informative introduction to the concepts of probability and utility theory, it quickly moves on to discuss Markowitz's seminal work on the topic with a thorough explanation of the underlying mathematics.

• Analyzes portfolios of all sizes and types, shows how the advanced findings and formulas are derived, and offers a concise and comprehensive review of MPT literature
• Addresses logical extensions to Markowitz's work, including the Capital Asset Pricing Model, Arbitrage Pricing Theory, portfolio ranking models, and performance attribution
• Considers stock market developments like decimalization, high frequency trading, and algorithmic trading, and reveals how they align with MPT
• Companion Website contains Excel spreadsheets that allow you to compute and graph Markowitz efficient frontiers with riskless and risky assets

If you want to gain a complete understanding of modern portfolio theory this is the book you need to read.

Preface xvii

CHAPTER 1 Introduction 1

1.1 The Portfolio Management Process 1

1.2 The Security Analyst's Job 1

1.3 Portfolio Analysis 2

1.3.1 Basic Assumptions 3

1.3.2 Reconsidering the Assumptions 3

1.4 Portfolio Selection 5

1.5 The Mathematics is Segregated 6

1.6 Topics to be Discussed 6

Appendix: Various Rates of Return 7

A1.1 Calculating the Holding Period Return 7

A1.2 After-Tax Returns 8

A1.3 Discrete and Continuously Compounded Returns 8

PART ONE Probability Foundations

CHAPTER 2 Assessing Risk 13

2.1 Mathematical Expectation 13

2.2 What Is Risk? 15

2.3 Expected Return 16

2.4 Risk of a Security 17

2.5 Covariance of Returns 18

2.6 Correlation of Returns 19

2.7 Using Historical Returns 20

2.8 Data Input Requirement…