
Portfolio Risk Analysis
by Connor, Gregory; Goldberg, Lisa R.; Korajczyk, Robert A.-
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Summary
Table of Contents
Acknowledgments | p. xi |
Introduction | p. xiii |
Key Notation | p. xix |
Measures of Risk and Return | p. 1 |
Measuring Return | p. 1 |
The Key Portfolio Risk Measures | p. 6 |
Risk-Return Preferences and Portfolio Optimization | p. 12 |
The Capital Asset Pricing Model and Its Applications to Risk Analysis | p. 23 |
The Objectives and Limitations of Portfolio Risk Analysis | p. 31 |
Unstructured Covariance Matrices | p. 36 |
Estimating Return Covariance Matrices | p. 36 |
The Error-Maximization Problem | p. 47 |
Portfolio Choice as Decision Making under Uncertainty | p. 54 |
Industry and Country Risk | p. 61 |
Industry-Country Component Models | p. 61 |
Empirical Evidence on the Relative Magnitudes of Country and Industry Risks | p. 73 |
Sector-Currency Models of Corporate Bond Returns | p. 77 |
Statistical Factor Analysis | p. 79 |
Types of Factor Models | p. 79 |
Approximate Factor Models | p. 82 |
The Arbitrage Pricing Theory | p. 86 |
Small-n Estimation Methods | p. 88 |
Large-n Estimation Methods | p. 93 |
Number of Factors | p. 98 |
The Macroeconomy and Portfolio Risk | p. 101 |
Estimating Macroeconomic Factor Models | p. 101 |
Event Studies of Macroeconomic Announcements | p. 110 |
Macroeconomic Policy Endogeneity | p. 112 |
Business Cycle Betas | p. 115 |
Empirical Fit and the Relative Value of Macroeconomic Factor Models | p. 116 |
Security Characteristics and Pervasive Risk Factors | p. 117 |
Equity and Fixed-Income Characteristics | p. 117 |
Characteristic-Based Factor Models of Equities | p. 122 |
The Fama-French Model and Extensions | p. 130 |
The Semiparametric Approach to Characteristic-Based Factor Models | p. 132 |
Measuring and Hedging Foreign Exchange Risk | p. 134 |
Definitions of Foreign Exchange Risk | p. 134 |
Optimal Currency Hedging | p. 142 |
Currency Covariances with Stock and Bond Returns | p. 149 |
Macroeconomic Influences on Currency Returns | p. 151 |
Integrated Risk Models | p. 155 |
Global and Regional Integration Trends | p. 155 |
Risk Integration across Asset Classes | p. 158 |
Segmented Asset Allocation and Security Selection | p. 159 |
Integrated Risk Models | p. 162 |
Dynamic Volatilities and Correlations | p. 167 |
GARCH Models | p. 167 |
Stochastic Volatility Models | p. 178 |
Time Aggregation | p. 180 |
Downside Correlation | p. 181 |
Option-Implied Volatility | p. 184 |
The Volatility Term Structure at Long Horizons | p. 187 |
Time-Varying Cross-Sectional Dispersion | p. 188 |
Portfolio Return Distributions | p. 191 |
Characterizing Return Distributions | p. 191 |
Estimating Return Distributions | p. 196 |
Tail Risk | p. 203 |
Nonlinear Dependence between Asset Returns | p. 207 |
Credit Risk | p. 212 |
Agency Ratings and Factor Models of Spread Risk | p. 213 |
Rating Transitions and Default | p. 217 |
Credit Instruments | p. 218 |
Conceptual Approaches to Credit Risk | p. 220 |
Recovery at Default | p. 232 |
Portfolio Credit Models | p. 232 |
The 2007-8 Credit-Liquidity Crisis | p. 238 |
Transaction Costs and Liquidity Risk | p. 241 |
Some Basic Terminology | p. 241 |
Measuring Transactions Cost | p. 246 |
Statistical Properties of Liquidity | p. 261 |
Optimal Trading Strategies and Transaction Costs | p. 266 |
Alternative Asset Classes | p. 271 |
Nonsynchronous Pricing and Smoothed Returns | p. 271 |
Time-Varying Risk, Nonlinear Payoff, and Style Drift | p. 284 |
Selection and Survivorship Biases | p. 291 |
Collectibles: Measuring Return and Risk with Infrequent and Error-Prone Observations | p. 295 |
Summary | p. 298 |
Performance Measurement | p. 299 |
Return-Based Performance Measurement | p. 299 |
Holdings-Based Performance Measurement and Attribution | p. 303 |
Volatility Forecast Evaluation | p. 309 |
Value-at-Risk Hit Rates | p. 316 |
Forecast and Realized Return Densities | p. 317 |
Conclusion | p. 319 |
Some Key Messages | p. 319 |
Questions for Future Research | p. 320 |
References | p. 323 |
Index | p. 345 |
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