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Part 1 THE INVESTMENTBACKGROUND2

THE INVESTMENT SETTING4

What Is an Investment?4

Investment Defined5

Measures of Return and Risk6

Measures of Historical Rates of Return6

Computing Mean Historical Returns8

Calculating Expected Rates of Return10

Measuring the Risk of Expected Rates of Return13

Risk Measures for Historical Returns15

Determinants of Requid Rates of Return15

The Real RiskFree Rate16

Factors Influencing the Nominal RiskFreeRate (NRFR)17

Risk Premium19

Risk Premium and Portfolio Theory21

Fundamental Risk versus Systematic Risk22

Summary of Required Rate of Return22

Relationship between Risk and Return23

Movements along the SML24

Changes in the Slope of the SML24

Changes in Capital Market Conditions orExpected Ination26

Summary of Changes in the RequiredRate of Return27

Investments Online27

STANDARD DEVIATION31

THE ASSET ALLOCATION DECISION36

Individual Investor Life Cycle37

The Preliminaries37

Life Cycle Net Worth and Investment Strategies38

Life Cycle Investment Goals39

The Portfolio Management Process39

The Need for a Policy Statement41

Understand and Articulate RealisticInvestor Goals41

Standards for Evaluating PortfolioPerformance42

Other Benefits43

Input to the Policy Statement43

Investment Objectives44

Investment Constraints47

Constructing the Policy Statement53

The Importance of Asset Allocation53

Real Investment Returns after Taxes and Costs54

Returns and Risks of Different Asset Classes55

Asset Allocation Summa57

Asset Allocation and Cultural Diffences58

Investments Online60

INSTITUTIONAL INVESTORS63

SELECTING INVESTMENTSIN A GLOBAL MARKET68

The Case for Global Investments69

Relative Size ofU.S.Financial Markets70

Rates of Return onU.S.and ForeignSecurities71

Individual Country Risk and Return72

Risk of Combined Country Investments73

Global Investment Choices78

FixedIncome Investments79

International Bond Investing82

Equi Instruments83

Special Equi Instruments: Options85

Futures Contracts86

Investment Companies86

Real Estate88

LowLiquidi Investments89

Historical Risk/Returns onAlternative Investments90

Stocks, Bonds, and T Bills91

World Portfolio Performance92

Art and Antiques95

Real Estate96

Investments Online99

Chapter 3 AppendrrCOVARIANCE AND CORRELATION103

Chapter 4 ORGANIZATION AND FUNCTIONINGOF SECURITIES MARKETS106

What Is a Market？107

Characteristics of a Good Market107

Organization of the Securities Market109

Primary Capital Markets109

Government Bond Issues109

Municipal Bond Issues109

Corporate Bond and Stock Issues110

Private Placements and Rule 144A112

Secondary Financial Markets112

Why Secondary Markets Are Important112

Secondarv Bond Markets113

Financial Futures114

Secondary Equi Markets114

Regional Exchanges and theOvertheCounter Market122

Detailed Analysis of ExchangeMarkets128

Exchange Membership128

Types of Orders129

Exchange Market Makers133

Changes in the Securities Markets136

Evidence and Effect of Institutionalization136

Negotiated Commission Rates137

The Impact of Block Trades138

Institutions and Stock Price Volatili139

National Market System (NMS)139

New Trading Systems142

Global Market Changes142

Future Developments144

Investments Online145

Chapter 4 AppendixCHARACTERISTICS OF DEVELOPEDAND DEVELOPING MARKETSAROUND THE WORLD149

Chapter 5SECURITYMARKETINDICATOR SERIES153

Uses of SecurityMarket Indexes154

Diffentiating Factors in ConstructingMarket Indexes155

The Sample155

Weighting Sample Members155

Computational Procedure155

StockMarket Indicator Series155

PriceWeighted Series156

ValueWeighted Series158

Unweighted Price Indicator Series161

Global Equity Indexes162

BondMarket Indicator Series165

Investment-Grade Bond Indexes168

High-Jield Bond Indexes168

Global Government Bond Market Indexes168

Composite Stock-Bond Indexes170

Merrill Lynch-Wilshire U.S. Capital MarketsIndex (ML-WCMI)170

Brinson Partners Global Security MarketIndex (GSMI)170

Comparison of Indexes over Time171

Correlations among Monthly EquityPrice Changes171

Correlations among Monthly Bond Indexes173

Mean Annual Stock Price Changes173

Annual Bond Rates of Return173

Investments Online175

Chapter S AppendxFOREIGN STOCK-MARKET INDEXES178

Chapter 6SOURCES OF INFORMATION ONGLOBAL INVESTMENTS180

Aggregate Economic Analysis181

U.S. Government Sources181

Bank Publications182

Non-U.S. Economic Data183

Agggate Security-Market Analysis185

Government Publications185

Commercial Publications185

Brokerage Firm Reports188

Industry Analysis190

Industry Publications190

Industry Magazines190

Individual Stock and Bond Analysis192

Company-Generated Information192

Commercial Publications193

Brokerage Firm Reports196

Investment Magazines196

Obtaining Information on Bonds199

Required Information199

Sources of Bond Quotes200

Sources of Information on Mutual Funds200

Theoretical and Empirical Analysis202

Academic Journals202

Computerized Data Sources204

Data Banks204

Online Databases205

Investments Online206

2DEVELOPMENTS ININVESTMENT THEORY210

Chapter 7EFFICIENT CAPITAL MARKETS212

Why Should Capital Markets Be Efficient?213

Alternative Efficient Market Hypotheses214

Expected Return or Fair Game Model214

Weak-Fm Efcient Market Hypothesis215

Semistrong-Form Efficient Market Hypothesis215

Strong-Form Efcient Market Hypothesis216

Tests and Results of Alternative EfficientMarket Hypotheses216

Weak-Form Hypothesis: Tests and Results216

Semistrong-Form Hypothesis: Tests and Results219

Strong-Form Hypothesis: Tests and Results240

Implications of Efficient Capital Markets247

Eicient Markets and Technical Analysis247

Efficient Markets and Fundamental Analysis247

Efficient Markets and Portfolio Management249

Efficiency in European Equity Markets252

Investments Online253

Chapter 8AN INTRODUCTION TOPORTFOLIO MANAGEMENT258

Some Background Assumptions259

Risk Aversion259

Definition of Risk260

Markowitz Portfolio Theory260

Alternative Measures of Risk260

Expected Rates of Return261

Variance (Standard Deviation) of Returns foran Individual Investment262

Variance (Standard Deviation) of Returns fora Portfolio262

Standard Deviation of a Portfolio267

A Three-Asset Portfolio275

Estimation Issues276

The Efficient Frontier277

The Efficient Frontier and Investor Utility,278

Investments Online279

Chapter 8 AppendixA PROOF THAT MINIMUM PORTFOLIOVARIANCE OCCURS WITH EQUALWEIGHTS WHEN SECURITIES HAVEEQUAL VARIANCE283

B DERIVATION OF WEIGHTS THATWILL GIVE ZERO VARIANCE WHENCORRELATION EQUALS -1.00284

Chapter 9AN INTRODUCTION TO ASSETPRICING MODELS285

Capital Market Theory: An Overview286

Background for Capital Market Theo286

Risk-Free Asset288

The Market Portfolio291

The Capital Asset Pricing Model: ExpectedReturn and Risk295

The Security Market Line (SML)296

Arbitrage Pricing Theory (APT)302

Empirical Tests of the APT307

Investments Online307

Chapter IoEXTENSIONS AND TESTING OFASSET PRICING THEORIES313

Relaxing the Assumptions314

Differential Borrowing and Lending Rates314

Zero-Beta Model315

Transaction Costs316

Heterogeneous Expectations and PlanningPeriods317

Taxes317

Empirical Tests of the CAPM318

Stability of Beta318

Comparabili of Published Estimates of Beta319

Relationship between Systematic Risk andReturn320

Effect of Skewness on the Relationship321

Effect of Size, PE, and Leverage322

Effect of Book-to-Market Value: TheFama-French Study322

Summary of CAPM Risk-Return EmpiricalResults323

The Market Portfolio: Theory versusPractice325

Arbitrage Pricing Theory (APT)329

Empirical Tests of the APT332

Roll-Ross Study,332

Extensions of the Roll-Ross Tests333

The APT and Anomalies334

The Shanken Challenge to Testability of the APT336

Investments Online337

Chapter IAN INTRODUCTION TODERIVATIVE MARKETS ANDSECURITIES341

Overview of Derivative Markets342

The Language and Structure of Forward andFutures Markets343

Interpreting Futures Price Quotations:An Example344

The Language and Structure of Option Markets346

Interpreting Option Price Quotations:An Example348

Investing with Derivative Securities349

The Basic Nature of Derivative Investing350

Basic Payoff Diagrams for Forward Contracts352

Basic Payoff Diagrams for Call and Put Options353

Option Payoff Diagrams: An Example356

The Relationship between Forward andOption Contracts358

Put-Call-Spot Pari359

Put-Call-Pari: An Example360

Creating Synthetic Securities Using Put-CallPari361

Adjusting Put-Call Spot Parity for Dividends363

Put-Call-Forward Pari364

An Intduction to the Use of Derivativesin Portfolio Management365

Restructuring Asset Portfolios with ForwardContracts366

Protecting Portfolio Value with Pat Options367

Investments Online370

3 VALUATION PRINCIPLESAND PRACTICES380

Chapter 12ANALYSIS OF FINANCIALSTATEMENTS382

Major Financial Statements382

Generally Accepted Accounting Principles383

Balance Sheet383

Income Statement383

Statement of Cash Flows383

Alternative Measures of Cash Flow387

Purpose of Financial Statement Analysis388

Analysis of Financial Ratios388

Importance of Relative Financial Ratios388

Computation of Financial Ratios389

Common Size Statements390

Evaluating Internal Liquidity391

Internal Liquidi Ratios391

Evaluating Operating Performance395

Operating Efficiency Ratios395

Operating Protabili Ratios397

Risk Analysis404

Business Risk404

Financial Risk406

Proportion of Debt (Balance Sheet)Ratios406

Earnings Flow Ratios408

Cash Flow Ratios410

Analysis of Growth Potential412

Importance of Growth Analysis412

Determinants of Growth412

External Market Liquidity414

Market Liquidi Dened414

Determinants of Market Liquidi414

Comparative Analysis of Ratios415

Internal Liquidi417

Operating Performance417

Financial Risk417

Growth Analysis417

Analysis of Non-U.S. Financial Statements417

Accounting Statement Format Dierences418

Dierences in Accounting Principles419

International Ratio Analysis422

The Quality of Financial Statements424

Balance Sheet424

Income Statement424

The Value of Financial Statement Analysis424

Uses of Financial Ratios425

Stock Valuation Models425

Financial Ratios and Systematic Risk426

Financial Ratios and Bond Ratings426

Financial Ratios and Insolvency (Bankruptcy)427

Limitations of Financial Ratios428

Investments Online428

Chapter 13AN INTRODUCTION TO SECURITYVALUATION436

An Overview of the Valuation Process437

Why a Three-Step Valuation Process?438

General Economic influences438

Indust Influences440

Company Analysis441

Does the Three-Step Process Work?441

Theory of Valuation442

Stream of Expected Returns (Cash Flows)442

Required Rate of Return443

Investment Decision Process: A Comparison ofEstimated Values and Market Prices443

Valuation of Alternative Investments443

Valuation of Bonds443

Valuation of Preferred Stock445

Approaches to the Valuation of Common Stock445

Why and When to Use the Discounted Cash-FlowValuation Approach446

Why and When to Use the Relative ValuationTechniques447

Discounted Cash-Flow Valuation Techniques447

Infinite Period DDM and Growth Companies452

Valuation with Tempora Supernormal Growth453

Present Value of Operating Cash Flows454

Present Value of Free Cash Flows to Equi456

Relative Valuation Techniques456

Earnings Multiplier Model457

The PricelCash Flow Ratio459

The PricelBook Value Ratio460

The PricelSales Ratio460

Estimating the Inputs: The Requid Rateof Return and the Expected Gwth Rate ofValuation Variables461

Required Rate of Return (k)461

Estimating the Required Return for ForeignSecurities463

Expected Growth Rate of Dividends466

Estimating Dividend Growth for Foreign Stocks469

Investments Online470

Chapter 13 AppendixDERIVATION OF CONSTANT GROWTHDIVIDEND DISCOUNT MODEL (DDM)473

Chapter 14THE ANALYSIS OF ALTERNATIVEECONOMIES AND SECURITYMARKETS: THE GLOBAL ASSETALLOCATION DECISION475

Economic Activity and Security Markets476

Cyclical Indicator Appach to Forecastingthe Economy478

Cyclical Indicator Categories478

Analytical Measures of Performance480

Limitations of the Cyclical Indicator Approach482

Leading Indicators and Stock Prices482

Other Leading Indicator Series483

Monetary Variables, the Economy, andStock Prices484

Money Supply and the Economy485

Money Supply and Stock Prices485

Other Economic Variables and Stock Prices487

Inflation, Interest Rates, and Security Prices488

Summary of Macroeconomic Analysis491

Analysis of World Security Markets491

Inflation and Exchange Rates492

Correlations among Returns492

Individual Count Stock Price Changes492

Individual Count Analysis493

World Asset Allocation494

Investments Online499

4ANALYSIS AND MANAGEMENTOF BONDS504

Chapter 15BOND FUNDAMENTALS506

Basic Featus of a Bond506

Bond Characteristics507

Rates of Return on Bonds509

The Global Bond-Market Structure510

Participating Issuers511

Participating Investors513

Bond Ratings513

Alternative Bond Issues515

Domestic Government Bonds516

Government Agency Issues519

Municipal Bonds522

Corporate Bonds524

International Bonds532

Obtaining Information on Bond Prices533

Interpreting Bond Quotes534

Investments Online539

Chapter 16THE ANALYSIS AND VALUATIONOF BONDS542

The Fundamentals of Bond Valuation543

The Present Value Model543

The Yield Model545

Computing Bond Yields546

Nominal Yield547

Current yield547

Promised Yield to Maturi547

Promised Yield to Call551

Realized (Horizon) Yield552

Calculating Future Bond Prices553

Realized (Horizon) ield with DifferentialReinvestment Rates555

Price and Yield Determination on NoninterestDates557

Yield Adjustments for Tax-Exempt Bonds557

Bond Vield Books558

Bond Valuation Using Spot Rates558

What Determines Interyst Rates?560

Forecasting Interest Rates561

Fundamental Determinants of Interest Rates562

Term Structure of Interest Rates565

Calculating Forward Rates fm theSpot Rate Curve570

Term Structu Theories573

Yield Spreads577

What Determines the Price Volatilityfor Bonds?578

Trading Strategies581

Duration Measures581

Modied Duration and Bond Price Volatility585

Bond Convexity586

Duration and Convexi for Callable Bonds591

Limitations of Macaulay and Modied Duration595

Yield Spreads with Embedded Options603

Static Yield Spreads604

Option-Adjusted Spread604

Investments Online606

Chapter 16 Appendix621

Chapter 17BOND PORTFOLIO MANAGEMENTSTRATEGIES622

Alternative Bond Portfolio Strategies622

Passive Management Strategies623

Active Management Strategies624

A Global Fixed-Income Investment Strategy637

Matched-Funding Techniques639

Contingent Procedures648

Implications of Capital Market Theory andthe EMH on Bond Portfolio Management654

Bonds and Total Portfolio Theo655

Bonds and Capital Market Theo655

Bond Price in a CAPM Framework656

Bond-Market Efciency659

Investments Online660

SANALYSIS OF COMMONSTOCKS676

Chapter 18STOCK-MARKET ANALYSIS678

Applying the DDM Valuation Model tothe Market679

Market Valuation Using the Reduced Form DDM680

Estimating the Gwth Rate of Dividends (g)684

Market Valuation Using the Free Cash Flow toEquity (FCFE) Model688

Valuation Using the Relative ValuationAppach690

Two-Part Valuation Procedure690

Importance of Both Components of Value691

Estimating Expected Earnings per Share693

Estimating Gross Domestic Product694

Estimating Sales per Share for a Market Series694

Alternative Estimates of Corporate Net Profits695

Estimating Aggregate Operating Prot Margin696

Estimating Depreciation Expense700

Estimating Interest Expense703

Estimating the Tax Rate704

Calculating Earnings per Share: An Example705

Estimating the Earnings Multiplier for aStock-Market Series706

Determinants of the Earnings Multiplier707

Estimating the Required Rate of Return (k)707

Estimating the Growth Rate of Dividends (g)707

Estimating the Dividend-Payout Ratio (D1lEd708

Estimating an Earnings Multiplier: An Example708

Calculating an Estimate of the Value for theMarket Series712

Calculating the Expected Rate of Return onCommon Stocks712

Other Relative Valuation Ratios713

Analysis of World Markets717

Individual Country Analysis717

Investments Online721

Chapter 19INDUSTRY ANALYSIS726

Why Do Industry Analysis?727

Cross-Sectional Indust Performance728

Industry Performance over Time728

Performance of the Companies within an Indust728

Differences in Industry Risk730

Summa of Research of Industry Analysis730

The Business Cycle and Industry Sectors730

Ination732

Interest Rates732

International Economics733

Consumer Sentiment733

Structural Economic Changes andAlternative Industries733

Demographics733

Lifestyles733

Technology734

Politics and Regulations734

Estimating Industry Rates of Return735

Valuation using the Reduced Form DDM736

Industry Valuation Using the Free Cash Flow toEquity (FCFE) Model744

Industry Analysis Using the RelativeValuation Approach746

The Earnings Multiple Technique746

Competition and Expected Indust Returns751

Other Relative Valuation Ratios764

The PricelBook Value Ratio764

The PricelCash Flow Ratio764

The PricelSales Ratio764

Global Industry Analysis766

The European Chemical Industry769

Investments Online771

Chapter 19 AppendixA. PREPARING AN INDUSTRY ANALYSIS777

B. DATA NEEDS FOR AN INDUSTRYANALYSIS779

C. INSIGHTS ON ANALYZING INDUSTRYROAs780

Chapter 20COMPANY ANALYSIS ANDSTOCK SELECTION782

Company Analysis versus the Selectionof Stock783

Growth Companies and Growth Stocks783

Defensive Companies and Stocks784

Cyclical Companies and Stocks785

Speculative Companies and Stocks785

Value versus Growth Investing785

Economic, Industry, and Structural Links toCompany Analysis785

Economic and Indust Influences786

Structural Influences786

Company Analysis787

Firm Competitive Strategies787

Focusing a Strategy789

SWOTAnalysis790

Some Lessons om Lynch790

Estimating Intrinsic Value792

Present Value of Dividends792

Present Value of Dividends Model (DDM)796

Present Value of Free Cash Flow to Equity797

Present Value of Operating Free Cash Flow798

Relative Valuation Ratio Techniques802

Estimating Company Earnings per Sha802

Company Sales Forecast802

Estimating the Company Profit Margin807

Walgen Competitive Strategies808

The Internal Performance808

Estimating Company Earnings Multipliers810

Macroanalysis of the Earnings Multiplier810

Microanalysis of the Earnings Multiplier811

Making the Investment Decision817

Additional Measus of Relative Value819

PricelBook Value (PIBV) Ratio819

PricelCash Flow (PICF) Ratio821

PricelSales (PIS) Ratio821

Summary of Relative Valuation Ratios823

Analysis of Growth Companies824

Growth Company Defined824

Actual Returns above Expected Returns824

Growth Companies and Growth Stocks825

Growth Companies and the DividendDiscount Model825

Alternative Growth Models826

No-Growth Firm826

Long-Run Growth Models826

The Real World830

Measures of Value-Added830

Economic Value-Added (EVA)830

Market Value-Added (MVA)832

Relationships between EVA and MVA834

The Franchise Factor834

Growth Duration835

A Flexible Growth Stock Valuation Model839

An Example841

Site Visits and the Art of the Interview843

When to Sell844

Inuences on Analysts844

Efficient Markets844

Paralysis ofAnalysis845

Forces Pulling on the Analyst845

Global Company Analysis845

Earnings per Share Analysis846

Common Stock Statistics846

Share Price Performance846

Individual Company Analysis848

Investments Online850

Chapter 21TECHNICAL ANALYSIS869

Underlying Assumptions ofTechnical Analysis870

Advantages of Technical Analysis871

Challenges to Technical Analysis873

Challenges to Technical Analysis Assumptions873

Challenges to Technical Trading Rules873

Technical Trading Rules and Indicators874

Contra-Opinion Rules875

Follow the Smart Money879

Other Market Environment Indicators882

Stock Price and Volume Techniques886

Technical Analysis of Foreign Markets894

Technical Analysis of Bond Markets895

Investments Online897

Chapter 22EQUITY PORTFOLIO MANAGEMENTSTRATEGIES901

Passive versus Active Management902

An Overview of Passive Equity PortfolioManagement Strategies903

Index Fund Construction Techniques904

An Overview of Active Equity PortfolioManagement Strategies905

Value versus Growth Investing:A Closer Look908

An Overview of Style Analysis913

Asset Allocation Strategies917

I ntegrated Asset Allocation917

Strategic Asset Allocation922

Tactical Asset Allocation922

Insured Asset Allocation924

Selecting an Allocation Method924

Using Futures and Options in EquityPortfolio Management924

Modifying Portfolio Risk and Return:A Review924

The Use of Futures in Asset Allocation927

The Use of Derivatives in Equi Portfolios927

Hedging Portfolio Inflows and Outflows928

Using Futures in Passive Equi PortfolioManagement928

Using Futures in Active Equi PortfolioManagement928

Modifying the Characteristics of an InternationalEqui Portfolio929

Investments Online930

6 DERIVATIVE SECURITYANALYSIS936

Chapter 23FORWARD AND FUTURESCONTRACTS938

An Overview of Forward andFutures Trading939

Hedging with Forwards and Futus943

Hedging and the Basis943

Calculating the Optimal Hedge Ratio945

Forward and Futus Contracts:Basic Valuation Concepts946

Valuing Forwards and Futures946

The Relationship between Spot andForward Prices948

Financial Forwards and Futures:Applications and Strategies949

Interest Rate Forwards and Futures950

Long-Term Interest Rate Futures950

Short-Term Interest Rate Futures955

Stock Index Futures962

Currency Forwards and Futures967

Investments Online974

Chapter 23 Appendix A.CLOSED-FORM EQUATION FORCALCULATING DURATION981

B. CALCULATING MONEY MARKETIMPLIED FORWARD RATES982

Chapter 24OPTION CONTRACTS985

An Overview of Option Markets andContracts986

Option Market Conventions986

Price Quotations for Exchange-TradedOptions987

The Fundamentals of Option Valuation994

The Basic Approach994

Improving Forecast Accuracy996

The Binomial Option Pricing Model1001

The Black-Seholes Valuation Model1004

Estimating Volatili1007

Problems with Black-Seholes Valuation1009

Option Valuation: Extensions andAdvanced Topics1011

Valuing European-Sle Put Options1011

Valuing Options on Dividend-BearingSecurities1012

Valuing American-Sle Options1013

Other Extensions of the Black-ScholesModel1015

Exotic Options1017

Option Trading Strategies1021

Protective Put Options1022

Covered Call Options1023

Straddles, Strips, and Straps1024

Strangles1026

Chooser options1027

Spreads1028

Range Forwards1031

Investments Online1033

Chapter 25SWAP CONTRACTS, CONVERTIBLESECURITIES, AND OTHEREMBEDDED DERIVATIVES1041

OTC Interest Rate Agreements1042

Forward-Based Interest Rate Contracts1042

Forward Rate Agreements1042

Interest Rate Swaps1044

Option-Based Interest Rate Contracts1051

Caps and Floors1051

Collars1052

Swap Options (“Swaptions”)1054

Swap Contracting Extensions1056

Currency Swaps1056

Equity Index-Linked Swaps1060

Commodity Swaps1062

Warrants and Convertible Securities1064

Warrants1065

Convertible Securities1066

Convertible Preferred Stock1067

Convertible Bonds1067

Other Embedded Derivatives1071

Dual Currency Bonds1072

Equity Index YinkedNotes1073

Commodi-Linked Bull and Bear Bonds1077

Swap-Linked Notes1079

Investments Online1082

7INVESTMENT COMPANIESAND EVALUATINGPORTFOLIO PERFORMANCE1092

Chapter 26PROFESSIONAL ASSETMANAGEMENT1094

The Asset Management Industry:Structure and Evolution1095

Private Management and Advisory Firms1098

Management of Investment Companies1099

Valuing Investment Company Shares1101

Closed-End versus Open-End InvestmentCompanies1101

Closed-End Investment Companies1101

Open-End Investment Companies1104

Fund Management Fees1105

pes of Investment Companies Based onPortfolio Makeup1106

Common Stock Funds1106

Balanced Funds1106

Bond Funds1106

Money Market Funds1106

Breakdown by Fund Characteristics1107

Global Investment Companies1108

Sources of Information1110

Ethics and Regulation in the ProfessionalAsset Management Industry1118

Performance of Investment Companies1120

Analysis of Overall Performance1120

Impact of Fund Objectives1122

Consistency of Performance1122

What Performance Studies Mean to You1123

Investments Online1125

Chapter 27EVALUATION OF PORTFOLIOPERFORMANCE1132

What Is Required of a Portfolio Manager?1133

Composite Portfolio PerformanceMeasures1134

Portfolio Evaluation before 19601134

Peer Group Comparisons1134

Treynor Portfolio Performance Measure1135

Sharpe Portfolio Performance Measure1139

Jensen Portfolio Performance Measure1141

The Information Ratio Performance Measure1143

Application of Portfolio PerformanceMeasures1144

Components of Investment Performance1149

Performance Attribution Analysis1154

Asset Class Attribution Analysis: An Example1155

Performance Attribution Extensions1156

Measuring Market Timing Skills1158

Factors That Affect Use of PerformanceMeasures1159

Benchmark Errors and Global Investing1160

A Demonstration of the Global BenchmarkProblem1161

Implications of the Benchmark Problems1162

Required Characteristics of Benchmarks1164

Evaluation of Bond Portfolio Performance1165

A Bond Market Line1165

Decomposing Portfolio Returns1168

Analyzing Sources of Return1170

Consistency of Performance1171

Reporting Investment Performance1171

Time-Weighted and Dollar-Weighted Returns1172

Performance Presentation Standards1173

Investments Online1177

Appendix AHOW TO BECOME A CHARTERFINANCIAL ANALYST1187

Appendix BCODE OF ETHICS AND STANDARDS OFPROFESSIONAL CONDUCT1189

Appendix CINTEREST TABLES1191

Appendix DSTANDARD NORMAL PROBABILITIES1196

Glossary1197

Name and Company Index1215

Subject Index1223