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9780470929919

Equity Valuation and Portfolio Management

by ;
  • ISBN13:

    9780470929919

  • ISBN10:

    047092991X

  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2011-10-04
  • Publisher: Wiley

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Summary

A detailed look at equity valuation and portfolio management Equity valuation is a method of valuing stock prices using fundamental analysis to determine the worth of the business and discover investment opportunities. In Equity Valuation and Portfolio Management Frank J. Fabozzi and Harry M. Markowitz explain the process of equity valuation, provide the necessary mathematical background, and discuss classic and new portfolio strategies for investment managers. Divided into two comprehensive parts, this reliable resource focuses on valuation and portfolio strategies related to equities. Discusses both fundamental and new techniques for valuation and strategies Fabozzi and Markowitz are experts in the fields of investment management and economics Includes end of chapter bullet point summaries, key chapter take-aways, and study questions Filled with in-depth insights and practical advice, Equity Valuation and Portfolio Management will put you in a better position to excel at this challenging endeavor.

Author Biography

Frank J. Fabozzi, PhD, CFA, is Professor of Finance at EDHEC Business School and a member of the EDHEC-Risk Institute. Prior to joining EDHEC in August 2011, he held various professorial positions in finance at the Yale School of Management from 1994 to 2011 and was a visiting professor of finance and accounting at the MIT Sloan School of Management from 1986 to 1992. He is also Editor of the Journal of Portfolio Management.

Harry M. Markowitz, PhD, is a consultant in the area of finance. In 1990, he was awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for his groundbreaking work in portfolio theory. In 1989, he received the John von Neumann Theory Prize of the Institute for Operations Research and the Management Sciences for his work in portfolio theory and other applications of mathematics and computers to business practice.

Table of Contents

Preacep. xiii
About the Editorsp. xxiii
Contributing Authorsp. xxv
An Introduction to Quantitative Equity Investingp. 1
Equity Investingp. 1
Fundamental Vs. Quantitative Investorp. 2
The Quantitative Stock Selection Modelp. 7
The Overall Quantitative-Investment Processp. 9
Researchp. 9
Portfolio Constructionp. 18
Monitoringp. 21
Current Trendsp. 22
Key Pointsp. 23
Questionsp. 24
Equity Analysis Using Traditional and Value-Based Metricsp. 25
Overview of Traditional Metricsp. 25
Price Multiplesp. 32
Fundamental Stock Returnp. 36
Traditional Caveatsp. 38
Overview of Value-Based Metricsp. 39
Key Pointsp. 58
Appendix: Case Studyp. 60
Questionsp. 69
A Franchise Factor Approach to Modeling P/E Orbitsp. 71
Backgroundp. 72
Historical Data Observationsp. 75
Formulation of the Basic Modelp. 81
P/E Myopia: The Fallacy of a Stable P/Ep. 85
Two-Phase P/E Orbitsp. 91
Franchise Valuation under Q-Type Competitionp. 96
Franchise Laborp. 91
Key Pointsp. 101
Questionsp. 102
Relative valuation Methods for Equity Analysis
Basic Principles of Relative Valuationp. 106
Hypothetical Examplep. 115
Key Pointsp. 123
Questionsp. 124
Valuation over the Cycle and the Distribution of Returnsp. 125
The Link Between Earnings and Returnsp. 126
The Phases Can Be Interpreted in Relationship to the Economyp. 132
Asset Class Performance Varies across the Phasesp. 137
Incorporating Cyclically into Valuationsp. 139
Appendix Dates and Returns of the Phasesp. 142
Key Pointsp. 146
Questionsp. 146
An Architecture for Equity Portfolio Managementp. 147
Architectural Building Blocksp. 148
Traditional Active Managementp. 151
Passive Managementp. 156
Engineered Managementp. 157
Expanding Opportunitiesp. 160
The Risk-Return Continuump. 163
The Ultimate Objectivep. 167
Key Pointsp. 168
Questionsp. 169
Equity Analysis in a Complex Marketp. 171
An Integrated Approach to a Segmented, Marketp. 172
Disentanglingp. 176
Constructing, Trading, and Evaluating Portfoliosp. 184
Profiting from Complexityp. 186
Key Points Questions
Survey Studies of the Use of Quantitative Equity Managementp. 189
2003 Intertek European Studyp. 189
2006 Intertek Studyp. 197
2007 Intertek Studyp. 205
Challenges for Quantitative Equity Investingp. 224
Modeling After the 2007-2009 Global Financial Crisisp. 226
Key Pointsp. 228
Questionsp. 229
Implementable Quantitative Equity Researchp. 231
The Rise of Econophysicsp. 233
A General Frameworkp. 235
Select a Sample Free from Survivorship Biasp. 238
Select a Methodology to Estimate the Modelp. 239
Risk Controlp. 246
Key Pointsp. 248
Questionsp. 249
Tracking Error and Common Stock Portfolio Managementp. 251
Definition of Tracking Errorp. 251
Components of Tracking Errorp. 254
Forward-Looking vs. Backward-Looking Tracking Errorp. 255
Information Ratiop. 256
Determinants of Tracking Errorp. 257
Marginal Contribution to Tracking Errorp. 261
Key Pointsp. 262
Questionsp. 263
Factor-Based Equity Portfolio Construction and Analysisp. 265
Factor-Based Tradingp. 266
Developing Factor-Based Trading Strategiesp. 269
Risk to Trading Strategiesp. 271
Desirable Properties of Factorsp. 273
Sources for Factorsp. 273
Building Factors from Company Characteristicsp. 274
Working with Datap. 275
Analysis of Factor Datap. 283
Key Pointsp. 287
Questionsp. 289
Cross-Sectional Factor-Based Models and Trading Strategiesp. 291
Cross-Sectional Methods for Evaluation of Factor Premiumsp. 292
Factor Modelsp. 300
Performance Evaluation of Factorsp. 310
Model Construction Methodologies for a Factor-based Trading Strategyp. 317
Backtestingp. 328
Backtesting Our Factor Trading Strategyp. 330
Key Pointsp. 331
Appendix: The Compustat Point-in-Time, IBES Consensus Databases and Factor Definitionsp. 333
Questionsp. 337
Multifactor Equity Risk Models and Their Applicationsp. 339
Motivationp. 340
Equity Risk Factor Modelsp. 342
Applications of Equity Risk Modelsp. 350
Key Pointsp. 370
Questionsp. 371
Dynamic Factor Approaches to Equity Portfolio Managementp. 373
Methods of Active Managementp. 376
Modelingp. 385
Implementationp. 392
Key Pointsp. 395
Questionsp. 395
A Factor Competition Approach to Stock Selectionp. 397
The Problemp. 397
The Solutionp. 403
Which Factors Get Picked?p. 407
Does the Alpha Repair Process Work?p. 408
Key Pointsp. 411
Questionsp. 412
Avoiding Unintended Country Bets in Global Equity Portfoliosp. 413
Country Membership and Individual Stock Returnsp. 414
Ways to Build Active Global Portfoliop. 416
Studying the Naive Portfoliop. 419
Empirical Resultsp. 420
Why Does the Naive Stock Selection Portfolio Make Country Noise Bets?p. 422
Key Pointsp. 423
Questionsp. 424
Modeling Market Impact Costsp. 425
Market Impact Costsp. 426
Liquidity and Transaction Costsp. 427
Market Impact Measurements and Empirical Findingsp. 430
Forecasting and Modeling Market Impactp. 433
Key Pointsp. 439
Questionsp. 440
Equity Portfolio Selection in Practicep. 441
Portfolio Constraints Commonly Used in Practicep. 442
Benchmark Exposure and Tracking Error Minimizationp. 450
Incorporating Transaction Costsp. 454
Incorporating Taxesp. 460
Multi-Account Optimizationp. 465
Robust Parameter Estimationp. 469
Portfolio Resamplingp. 471
Robust Portfolio Optimizationp. 474
Key Pointsp. 480
Questionsp. 481
Portfolio Construction and Extreme Riskp. 483
Measures of Extreme Lossp. 484
Constraining Shortfallp. 485
Performancep. 485
Imposing Benchmark Neutralityp. 487
Analysisp. 489
Key Pointsp. 493
Appendix: Constructing Out-of-Sample Shortfall Betasp. 494
Questionsp. 495
Working with High-Frequency Datap. 497
What is High-Frequency Data?p. 497
How is High-Frequency Data Recorded?p. 499
Properties of High-Frequency Datap. 500
High-Frequency Data are Voluminousp. 501
High-Frequency Data are Subject to Bid-Ask Bourcep. 503
High-Frequency Data; are Irregularly! Spaced in Timep. 509
Equity Correlations Decay at High Frequenciesp. 517
Key Pointsp. 519
Questionsp. 520
Statistical Arbitragep. 521
Pairs Tradingp. 523
General Modelsp. 532
Key Pointsp. 534
Questionsp. 534
About the Websitep. 535
Indexp. 537
Table of Contents provided by Ingram. All Rights Reserved.

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