Investments

Cover
Investments
About the Authors
Brief Contents
Contents
Distinctive Features
Supplements
Acknowledgments
PART I: Introduction
	Chapter 1: The Investment Environment
		1.1 Real Assets versus Financial Assets
		1.2 Financial Assets
		1.3 Financial Markets and the Economy
			The Informational Role of Financial Markets
			Consumption Timing
			Allocation of Risk
			Separation of Ownership and Management
			Corporate Governance and Corporate Ethics
		1.4 The Investment Process
		1.5 Markets Are Competitive
			The Risk–Return Trade-Off
			Efficient Markets
		1.6 The Players
			Financial Intermediaries
			Investment Bankers
			Venture  Capital and Private Equity
			Fintech and Financial Innovation
		1.7 The Financial Crisis of 2008-2009
			Antecedents of the Crisis
			Changes in Housing Finance
			Mortgage Derivatives
			Credit Default Swaps
			The Rise of Systemic Risk
			The Shoe Drops
			The Dodd-Frank Reform Act
		1.8 Outline of the Text
		End of Chapter Material
	Chapter 2: Asset Classes and Financial Instruments
		2.1 The Money Market
			Treasury Bills
			Certificates of Deposit
			Commercial Paper
			Bankers’ Acceptances
			Eurodollars
			Repos and Reverses
			Federal Funds
			Brokers’ Calls
			The LIBOR Market
			Yields on Money Market  Instruments
			Money Market Funds
		2.2 The Bond Market
			Treasury Notes and Bonds
			Inflation-Protected Treasury Bonds
			Federal Agency Debt
			International Bonds
			Municipal Bonds
			Corporate Bonds
			Mortgage and Asset-Backed Securities
		2.3 Equity Securities
			Common Stock as Ownership Shares
			Characteristics of Common Stock
			Stock Market Listings
			Preferred Stock
			Depositary Receipts
		2.4 Stock and Bond Market Indexes
			Stock Market Indexes
			Dow Jones Industrial Average
			The Standard & Poor’s 500 Index
			Other U.S. Market-Value Indexes
			Equally Weighted Indexes
			Foreign and International Stock Market Indexes
			Bond Market Indicators
		2.5 Derivative Markets
			Options
			Futures Contracts
		End of Chapter Material
	Chapter 3: How Securities Are Traded
		3.1 How Firms Issue Securities
			Privately Held Firms
			Publicly Traded Companies
			Shelf Registration
			Initial Public Offerings
		3.2 How Securities Are Traded
			Types of Markets
				Direct Search Markets
				Brokered Markets
				Dealer Markets
				Auction Markets
			Types of Orders
				Market Orders
				Price-Contingent Orders
			Trading Mechanisms
				Dealer Markets
				Electronic Communication Networks (ECNs)
				Specialist/DMM Markets
		3.3 The Rise of Electronic Trading
		3.4 U.S. Markets
			NASDAQ
			The New York Stock Exchange
			ECNs
		3.5 New Trading Strategies
			Algorithmic Trading
			High-Frequency Trading
			Dark Pools
			Bond Trading
		3.6 Globalization of Stock Markets
		3.7 Trading Costs
		3.8 Buying on Margin
		3.9 Short Sales
		3.10 Regulation of Securities Markets
			Self-Regulation
			The Sarbanes-Oxley Act
			Insider Trading
		End of Chapter Material
	Chapter 4: Mutual Funds and Other Investment Companies
		4.1 Investment Companies
		4.2 Types of Investment Companies
			Unit Investment Trusts
			Managed Investment Companies
			Other Investment Organizations
				Commingled Funds
				Real Estate Investment Trusts (REITs)
				Hedge Funds
		4.3 Mutual Funds
			Investment Policies
				Money Market Funds
				Equity Funds
				Sector Funds
				Bond Funds
				International Funds
				Balanced Funds
				Asset Allocation and Flexible Funds
				Index Funds
			How Funds Are Sold
		4.4 Costs of Investing in Mutual Funds
			Fee Structure
				Operating Expenses
				Front-End Load
				Back-End Load
				12-1 Charges
			Fees and Mutual Fund Returns
		4.5 Taxation of Mutual Fund Income
		4.6 Exchange-Traded Funds
		4.7 Mutual Fund Investment Performance: A First Look
		4.8 Information on Mutual Funds
		End of Chapter Material
PART II: Portfolio Theory and Practice
	Chapter 5: Risk, Return, and the Historical Record
		5.1 Measuring Returns over Different Holding Periods
			Annual Percentage Rates
			Continuous Compounding
		5.2 Interest Rates and Inflation Rates
			Real and Nominal Rates of Interest
			The Equilibrium Real Rate of Interest
			Interest Rates and Inflation
			Taxes and the Real Rate of Interest
			Treasury Bills and  Inflation, 1926–2018
		5.3 Risk and Risk Premiums
			Holding-Period Returns
			Expected Return and Standard Deviation
			Excess Returns and Risk Premiums
		5.4 Learning from Historical Returns
			Time Series versus Scenario Analysis
			Expected Returns and the Arithmetic Average
			The Geometric (Time-Weighted) Average Return
			Estimating Variance and Standard Deviation
			Mean and Standard Deviation Estimates from  Higher-Frequency Observations
			The Reward-to-Volatility (Sharpe) Ratio
		5.5 The Normal Distribution
		5.6 Deviations from Normality and Tail Risk
			Value at Risk
			Expected Shortfall
			Lower Partial  Standard Deviation and the Sortino Ratio
			Relative  Frequency of Large, Negative 3-Sigma Returns
		5.7 Historic Returns on Risky Portfolios
			A Global View of the Historical Record
		5.8 Normality and Long-Term Investments
			Short-Run versus Long-Run Risk
			Forecasts for the Long Haul
		End of Chapter Material
	Chapter 6: Capital Allocation to Risky Assets
		6.1 Risk and Risk Aversion
			Risk, Speculation, and Gambling
			Risk Aversion and Utility Values
			Estimating Risk Aversion
		6.2 Capital Allocation across Risky and Risk-Free Portfolios
		6.3 The Risk-Free Asset
		6.4 Portfolios of One Risky Asset and a Risk-Free Asset
		6.5 Risk Tolerance and Asset Allocation
			Non-Normal Returns
		6.6 Passive Strategies: The Capital Market Line
		End of Chapter Material
		Appendix A: Risk Aversion, Expected Utility, and the St. Petersburg Paradox
	Chapter 7: Efficient Diversification
		7.1 Diversification and Portfolio Risk
		7.2 Portfolios of Two Risky Assets
		7.3 Asset Allocation with Stocks, Bonds, and Bills
			Asset Allocation with Two Risky Asset Classes
		7.4 The Markowitz Portfolio Optimization Model
			Security Selection
			Capital Allocation and the  Separation Property
			The Power of Diversification
			Asset Allocation and Security Selection
			Optimal  Portfolios and Non-Normal Returns
		7.5 Risk Pooling, Risk Sharing, and Time Diversification
			Risk Sharing versus Risk Pooling
			Time Diversification
		End of Chapter Material
		Appendix A: A Spreadsheet Model for Efficient Diversification
		Appendix B: Review of Portfolio Statistics
	Chapter 8: Index Models
		8.1 A Single-Factor Security Market
			The Input List of the Markowitz Model
			Systematic  versus Firm-Specific Risk
		8.2 The Single-Index Model
			The Regression Equation of the Single-Index Model
			The Expected Return–Beta Relationship
			Risk and  Covariance in the Single-Index Model
			The Set of  Estimates Needed for the Single-Index Model
			The Index Model and Diversification
		8.3 Estimating the Single-Index Model
			The Security Characteristic Line for Amazon
			The  Explanatory Power of Amazon’s SCL
			The Estimate of Alpha
			The Estimate of Beta
			Firm-Specific Risk
			Typical Results from Index Model Regressions
		8.4 The Industry Version of the Index Model
			Predicting Betas
		8.5 Portfolio Construction Using the Single-Index Model
			Alpha and Security Analysis
			The Index Portfolio as an Investment Asset
			The Single-Index Model Input List
			The Optimal Risky Portfolio in the Single-Index Model
			The Information Ratio
			Summary of Optimization Procedure
			An Example
			Correlation and Covariance Matrix
			Risk Premium Forecasts
			The Optimal Risky Portfolio
			Is the Index Model Inferior to the Full-Covariance Model?
		End of Chapter Material
PART III: Equilibrium in Capital Markets
	Chapter 9: The Capital Asset Pricing Model
		9.1 The Capital Asset Pricing Model
			The Market Portfolio
			The Passive Strategy Is Efficient
			The Risk Premium of the Market Portfolio
			Expected Returns on Individual Securities
			The Security Market Line
			The CAPM and the Single-Index Market
		9.2 Assumptions and Extensions of the CAPM
			Identical Input Lists
			Risk-Free Borrowing and the  Zero-Beta Model
			Labor Income and Other Nontraded Assets
			A Multiperiod Model and Hedge Portfolios
			A Consumption-Based CAPM
			Liquidity and the CAPM
		9.3 The CAPM and the Academic World
		9.4 The CAPM and the Investment Industry
		End of Chapter Material
	Chapter 10: Arbitrage Pricing Theory and Multifactor Models of Risk and Return
		10.1 Multifactor Models: A Preview
			Factor Models of Security Returns
		10.2 Arbitrage Pricing Theory
			Arbitrage, Risk Arbitrage, and Equilibrium
			Diversification in a Single-Factor Security Market
			Well-Diversified Portfolios
			The Security Market Line of the APT
				Individual Assets and the APT
			Well-Diversified Portfolios in Practice
		10.3 The APT and the CAPM
		10.4 A Multifactor APT
		10.5 The Fama-French (FF) Three-Factor Model
			Estimating and Implementing a Three-Factor SML
			Smart Betas and Multifactor Models
		End of Chapter Material
	Chapter 11: The Efficient Market Hypothesis
		11.1 Random Walks and Efficient Markets
			Competition as the Source of Efficiency
			Versions of the Efficient Market Hypothesis
		11.2 Implications of the EMH
			Technical Analysis
			Fundamental Analysis
			Active versus Passive Portfolio Management
			The Role of Portfolio Management in an Efficient Market
			Resource Allocation
		11.3 Event Studies
		11.4 Are Markets Efficient?
			The Issues
				The Magnitude Issue
				The Selection Bias Issue
				The Lucky Event Issue
			Weak-Form Tests: Patterns in Stock Returns
				Returns over Short Horizons
				Returns over Long Horizons
				Predictors of Broad Market Returns
				Semistrong Tests: Market Anomalies
				The Small-Firm Effect
				The Neglected-Firm and Liquidity Effects
				Book-to-Market Ratios
				Post–Earnings-Announcement Price Drift
				Other  Predictors of Stock Returns
			Strong-Form Tests: Inside Information
			Interpreting the Anomalies
				Risk Premiums or Inefficiencies?
				Anomalies or Data Mining?
				Anomalies over Time
			Bubbles and Market Efficiency
		11.5 Mutual Fund and Analyst Performance
			Stock Market Analysts
			Mutual Fund Managers
			So, Are Markets Efficient?
		End of Chapter Material
	Chapter 12: Behavioral Finance and Technical Analysis
		12.1 The Behavioral Critique
			Information Processing
				Limited Attention, Underreaction, and Overreaction
				Overconfidence
				Conservatism
				Extrapolation and Pattern Recognition
			Behavioral Biases
				Framing
				Mental Accounting
				Regret Avoidance
				Affect and Feelings
				Prospect Theory
			Limits to Arbitrage
				Fundamental Risk
				Implementation Costs
				Model Risk
			Limits to Arbitrage and the Law of One Price
				“Siamese Twin” Companies
				Equity Carve-Outs
				Closed-End Funds
			Bubbles and Behavioral Economics
			Evaluating the Behavioral Critique
		12.2 Technical Analysis and Behavioral Finance
			Trends and Corrections
				Momentum and Moving Averages
				Relative Strength
				Breadth
			Sentiment Indicators
				Trin Statistic
				Confidence Index
				Short Interest
				Put/Call Ratio
			A Warning
		End of Chapter Material
	Chapter 13: Empirical Evidence on Security Returns
		13.1 The Index Model and the Single-Factor SML
			The Expected Return–Beta Relationship
				Setting Up the Sample Data
				Estimating the SCL
				Estimating the SML
			Tests of the CAPM
			The Market Index
			Measurement Error in Beta
		13.2 Tests of the Multifactor Models
			Labor Income
			Private (Nontraded) Business
			Early Tests of the Multifactor CAPM and APT
			A Macro Factor Model
		13.3 Fama-French-Type Factor Models
			Size and B/M as Risk Factors
			Behavioral Explanations
			Momentum: A Fourth Factor
			Characteristics versus Factor Sensitivities
		13.4 Liquidity and Asset Pricing
		13.5 Consumption-Based Asset Pricing and the Equity  Premium Puzzle
			Expected versus Realized Returns
			Survivorship Bias
			Extensions to the CAPM May Resolve the Equity Premium Puzzle
			Liquidity and the Equity  Premium Puzzle
			Behavioral Explanations of the Equity Premium Puzzle
		End of Chapter Material
PART IV: Fixed-Income Securities
	Chapter 14: Bond Prices and Yields
		14.1 Bond Characteristics
			Treasury Bonds and Notes
				Accrued Interest and Quoted Bond Prices
			Corporate Bonds
				Call Provisions on Corporate Bonds
				Convertible Bonds
				Puttable Bonds
				Floating-Rate Bonds
			Preferred Stock
			Other Domestic Issuers
			International Bonds
			Innovation in the Bond Market
				Inverse Floaters
				Asset-Backed Bonds
				Catastrophe Bonds
				Indexed Bonds
		14.2 Bond Pricing
			Bond Pricing between Coupon Dates
		14.3 Bond Yields
			Yield to Maturity
			Yield to Call
			Realized Compound Return versus Yield to Maturity
		14.4 Bond Prices over Time
			Yield to Maturity versus Holding-Period Return
			Zero-Coupon Bonds and Treasury Strips
			After-Tax Returns
		14.5 Default Risk and Bond Pricing
			Junk Bonds
			Determinants of Bond Safety
			Bond Indentures
				Sinking Funds
				Subordination of Further Debt
				Dividend Restrictions
				Collateral
			Yield to Maturity and Default Risk
			Credit Default Swaps
			Credit Risk and Collateralized Debt Obligations
		End of Chapter Material
	Chapter 15: The Term Structure of Interest Rates
		15.1 The Yield Curve
			Bond Pricing
		15.2 The Yield Curve and Future Interest Rates
			The Yield Curve under Certainty
			Holding-Period Returns
			Forward Rates
		15.3 Interest Rate Uncertainty and Forward Rates
		15.4 Theories of the Term Structure
			The Expectations Hypothesis
			Liquidity Preference Theory
		15.5 Interpreting the Term Structure
		15.6 Forward Rates as Forward Contracts
		End of Chapter Material
	Chapter 16: Managing Bond Portfolios
		16.1 Interest Rate Risk
			Interest Rate Sensitivity
			Duration
			What Determines Duration?
			Rule 1 for Duration
			Rule 2 for Duration
			Rule 3 for Duration
			Rule 4 for Duration
			Rule 5 for Duration
		16.2 Convexity
			Why Do Investors Like Convexity?
			Duration and  Convexity of Callable Bonds
			Duration and Convexity of Mortgage-Backed Securities
		16.3 Passive Bond Management
			Bond-Index Funds
			Immunization
			Cash Flow  Matching and Dedication
			Other Problems with Conventional Immunization
		16.4 Active Bond Management
			Sources of Potential Profit
			Horizon Analysis
		End of Chapter Material
PART V: Security Analysis
	Chapter 17: Macroeconomic and Industry Analysis
		17.1 The Global Economy
		17.2 The Domestic Macroeconomy
			Key Economic Indicators
				Gross Domestic Product
				Employment
				Inflation
				Interest Rates
				Budget Deficit
				Sentiment
		17.3 Demand and Supply Shocks
		17.4 Federal Government Policy
			Fiscal Policy
			Monetary Policy
			Supply-Side Policies
		17.5 Business Cycles
			The Business Cycle
			Economic Indicators
			Other Indicators
		17.6 Industry Analysis
			Defining an Industry
			Sensitivity to the Business Cycle
			Sector Rotation
			Industry Life Cycles
				Start-Up Stage
				Consolidation Stage
				Maturity Stage
				Relative Decline
			Industry Structure and Performance
				Threat of Entry
				Rivalry between Existing Competitors
				Pressure from Substitute Products
				Bargaining Power of Buyers
				Bargaining Power of Suppliers
		End of Chapter Material
	Chapter 18: Equity Valuation Models
		18.1 Valuation by Comparables
			Limitations of Book Value
		18.2 Intrinsic Value versus Market Price
		18.3 Dividend Discount Models
			The Constant-Growth DDM
			Convergence of Price to Intrinsic Value
			Stock Prices and Investment  Opportunities
			Life Cycles and Multistage Growth  Models
			Multistage Growth Models
		18.4 The Price–Earnings Ratio
			The Price–Earnings Ratio and Growth Opportunities
			P/E Ratios and Stock Risk
			Pitfalls in P/E Analysis
			The Cyclically Adjusted P/E Ratio
			Combining P/E Analysis and the DDM
			Other Comparative Valuation Ratios
				Price-to-Book Ratio
				Price-to-Cash-Flow Ratio
				Price-to-Sales Ratio
		18.5 Free Cash Flow Valuation Approaches
			Comparing the Valuation Models
			The Problem with DCF Models
		18.6 The Aggregate Stock Market
		End of Chapter Material
	Chapter 19: Financial Statement Analysis
		19.1 The Major Financial Statements
			The Income Statement
			The Balance Sheet
			The Statement of Cash Flows
		19.2 Measuring Firm Performance
		19.3 Profitability Measures
			Return on Assets, ROA
			Return on Capital, ROC
			Return on Equity, ROE
			Financial Leverage and ROE
			Economic Value Added
		19.4 Ratio Analysis
			Decomposition of ROE
			Turnover and Other Asset  Utilization Ratios
			Liquidity Ratios
			Market Price Ratios: Growth versus Value
			Choosing a Benchmark
		19.5 An Illustration of Financial Statement Analysis
		19.6 Comparability Problems
			Inventory Valuation
			Depreciation
			Inflation and  Interest Expense
			Fair Value Accounting
			Quality of Earnings and Accounting Practices
			International Accounting Conventions
		19.7 Value Investing: The Graham Technique
		End of Chapter Material
PART VI: Options, Futures, and Other Derivatives
	Chapter 20: Options Markets: Introduction
		20.1 The Option Contract
			Options Trading
			American versus European Options
			Adjustments in Option Contract Terms
			The Options Clearing Corporation
			Other Listed Options
				Index Options
				Futures Options
				Foreign Currency Options
				Interest Rate Options
		20.2 Values of Options at Expiration
			Call Options
			Put Options
			Option versus Stock Investments
		20.3 Option Strategies
			Protective Put
			Covered Calls
			Straddle
			Spreads
			Collars
		20.4 The Put-Call Parity Relationship
		20.5 Option-Like Securities
			Callable Bonds
			Convertible Securities
			Warrants
			Collateralized Loans
			Levered Equity and Risky Debt
		20.6 Financial Engineering
		20.7 Exotic Options
			Asian Options
			Barrier Options
			Lookback Options
			Currency-Translated Options
			Digital Options
		End of Chapter Material
	Chapter 21: Option Valuation
		21.1 Option Valuation: Introduction
			Intrinsic and Time Values
			Determinants of Option Values
		21.2 Restrictions on Option Values
			Restrictions on the Value of a Call Option
			Early  Exercise and Dividends
			Early Exercise of American Puts
		21.3 Binomial Option Pricing
			Two-State Option Pricing
			Generalizing the  Two-State Approach
			Making the Valuation Model Practical
		21.4 Black-Scholes Option Valuation
			The Black-Scholes Formula
			Dividends and Call Option Valuation
			Put Option Valuation
			Dividends and Put Option Valuation
		21.5 Using the Black-Scholes Formula
			Hedge Ratios and the Black-Scholes Formula
			Portfolio Insurance
			Option Pricing and the Financial Crisis
			Option Pricing and Portfolio Theory
			Hedging Bets on Mispriced Options
		21.6 Empirical Evidence on Option Pricing
		End of Chapter Material
	Chapter 22: Futures Markets
		22.1 The Futures Contract
			The Basics of Futures Contracts
			Existing Contracts
		22.2 Trading Mechanics
			The Clearinghouse and Open Interest
			The Margin Account and Marking to Market
			Cash versus Actual Delivery
			Regulations
			Taxation
		22.3 Futures Markets Strategies
			Hedging and Speculation
			Basis Risk and Hedging
		22.4 Futures Prices
			The Spot-Futures Parity Theorem
			Spreads
			Forward versus Futures Pricing
		22.5 Futures Prices versus Expected Spot Prices
			Expectations Hypothesis
			Normal Backwardation
			Contango
			Modern Portfolio Theory
		End of Chapter Material
	Chapter 23: Futures, Swaps, and Risk Management
		23.1 Foreign Exchange Futures
			The Markets
			Interest Rate Parity
			Direct versus Indirect Quotes
			Using Futures to Manage Exchange Rate Risk
		23.2 Stock-Index Futures
			The Contracts
			Creating Synthetic Stock Positions: An Asset Allocation Tool
			Index Arbitrage
			Using Index Futures to Hedge Market Risk
		23.3 Interest Rate Futures
			Hedging Interest Rate Risk
		23.4 Swaps
			Swaps and Balance Sheet Restructuring
			The Swap Dealer
			Other Interest Rate Contracts
			Swap Pricing
			Credit Risk in the Swap Market
			Credit Default Swaps
		23.5 Commodity Futures Pricing
			Pricing with Storage Costs
			Discounted Cash Flow Analysis for Commodity Futures
		End of Chapter Material
PART VII: Applied Portfolio Management
	Chapter 24: Portfolio Performance Evaluation
		24.1 The Conventional Theory of Performance Evaluation
			Average Rates of Return
			Time-Weighted Returns versus Dollar-Weighted Returns
			Adjusting Returns for Risk
			Risk-Adjusted Performance Measures
			The Sharpe Ratio for Overall Portfolios
				The M2 Measure and the Sharpe Ratio
			The Treynor Ratio
			The Information Ratio
			The Role of Alpha in Performance Measures
			Implementing  Performance Measurement: An Example
			Realized Returns versus Expected Returns
			Selection Bias and Portfolio Evaluation
		24.2 Style Analysis
		24.3 Performance Measurement with Changing Portfolio Composition
			Performance Manipulation and the Morningstar  Risk-Adjusted Rating
		24.4 Market Timing
			The Potential Value of Market Timing
			Valuing  Market Timing as a Call Option
			The Value of Imperfect Forecasting
		24.5 Performance Attribution Procedures
			Asset Allocation Decisions
			Sector and Security  Selection Decisions
			Summing Up Component Contributions
		End of Chapter Material
	Chapter 25: International Diversification
		25.1 Global Markets for Equities
			Developed Countries
			Emerging Markets
			Market  Capitalization and GDP
			Home-Country Bias
		25.2 Exchange Rate Risk and International Diversification
			Exchange Rate Risk
			Investment Risk in International Markets
			International Diversification
			Are Benefits from International Diversification Preserved in Bear Markets?
		25.3 Political Risk
		25.4 International Investing and Performance Attribution
			Constructing a Benchmark Portfolio of Foreign Assets
			Performance Attribution
		End of Chapter Material
	Chapter 26: Hedge Funds
		26.1 Hedge Funds versus Mutual Funds
			Transparency
			Investors
			Investment Strategies
			Liquidity
			Compensation Structure
		26.2 Hedge Fund Strategies
			Directional versus Nondirectional Strategies
			Statistical Arbitrage
			High-Frequency Strategies
				Electronic News Feeds
				Cross-Market Arbitrage
				Electronic Market Making
				Electronic “Front Running”
		26.3 Portable Alpha
			An Example of a Pure Play
		26.4 Style Analysis for Hedge Funds
		26.5 Performance Measurement for Hedge Funds
			Liquidity and Hedge Fund Performance
			Hedge Fund Performance and Selection Bias
			Hedge Fund  Performance and Changing Factor Loadings
			Tail Events and Hedge Fund Performance
		26.6 Fee Structure in Hedge Funds
		End of Chapter Material
	Chapter 27: The Theory of Active Portfolio Management
		27.1 Optimal Portfolios and Alpha Values
			Forecasts of Alpha Values and Extreme Portfolio Weights
			Restriction of Benchmark Risk
		27.2 The Treynor-Black Model and Forecast Precision
			Adjusting Forecasts for the Precision of Alpha
			Distribution of Alpha Values
			Organizational Structure and Performance
		27.3 The Black-Litterman Model
			Black-Litterman Asset Allocation Decision
			Step 1: The Covariance Matrix from Historical Data
			Step 2: Determination of a Baseline Forecast
			Step 3: Integrating the Manager’s Private Views
			Step 4: Revised (Posterior) Expectations
			Step 5: Portfolio Optimization
		27.4 Treynor-Black versus Black-Litterman: Complements, Not Substitutes
			The BL Model as Icing on the TB Cake
			Why Not Replace the Entire TB Cake with the BL Icing?
		27.5 The Value of Active Management
			A Model for the Estimation of Potential Fees
			Results from the Distribution of Actual Information Ratios
			Results from Distribution of Actual Forecasts
		27.6 Concluding Remarks on Active Management
		End of Chapter Material
		Appendix A: Forecasts and Realizations of Alpha
		Appendix B: The General Black-Litterman Model
	Chapter 28: Investment Policy and the Framework of the CFA Institute
		28.1 The Investment Management Process
			Objectives
		28.2 Major Investor Types
			Individual  Investors
			Personal Trusts
			Mutual Funds
			Pension Funds
			Endowment Funds
			Life Insurance Companies
			Non–Life Insurance Companies
			Banks
		28.3 Constraints
			Liquidity
			Investment Horizon
			Regulations
			Tax Considerations
			Unique Needs
		28.4 Policy Statements
			Sample Policy Statements for Individual Investors
		28.5 Asset Allocation
			Taxes and Asset Allocation
		28.6 Managing Portfolios of Individual Investors
			Human Capital and Insurance
			Investment in Residence
			Saving for Retirement and the Assumption of Risk
			Retirement Planning Models
			Manage Your Own Portfolio or Rely on Others?
			Tax Sheltering
				The Tax-Deferral Option
				Tax-Protected Retirement Plans
				Deferred Annuities
				Variable and Universal Life Insurance
		28.7 Pension Funds
			Defined Contribution Plans
			Defined Benefit Plans
			Pension Investment Strategies
				Investing in Equities
				Wrong Reasons to Invest in Equities
		28.8 Investments for the Long Run
			Target Date Funds
			Inflation Risk and Long-Term Investors
		End of Chapter Material
REFERENCES TO CFA PROBLEMS
GLOSSARY
NAME INDEX
SUBJECT INDEX
NOTATION, FORMULAS