Introduction Overview of investment styles; Empirical evidence on returns of small capitalization firms and value stocks; How to identify investment styles of a mutual fund Characteristic-based style analysis Return-based style analysis Style benchmarks
INVESTMENTS Fourth Edition Efficient Market Hypothesis (EMHD Do security prices reflect information Why look at market efficiency Implications for business and corporate finance Implications for investment
Arbitrage Pricing Theory Arbitrage-arises if an investor can construct a zero investment portfolio with a sure profit Since no investment is required, an investor can create large positions to secure large levels of profit
Fourth Edition Advantages of the Single Index Model Reduces the number of inputs for diversification. Portfolio of 50 assets 50 expected returns;50 variances 1225 covariance. too difficult a task
INVESTMENTS Two-Security Portfolio: Return rp =W+W2r2 W Proportion of funds in Security 1 W2 Proportion of funds in Security 2 =Expected return on Security 1
Capital allocation The choice of proportion in safe asset and proportion in risky asset; Most institutional investors follows top- down analysis---The first part is asset allocation and the next part is security selection decision
