QUESTIONS

  1. Discuss some of the developments that led to the rise of dynamic factor models and their growing role in portfolio management.
  2. Explain how traditional approaches to portfolio management based on individual security selection are nested in the concept of a factor-based view of the portfolio.
  3. Discuss how individual stocks may be of less importance to a portfolio manager employing a factor-based approach.
  4. Describe the empirical evidence on value and momentum strategies and explain how value and momentum may be used as complementary factors in portfolio management.
  5. How have financial innovations such as altered the way in which portfolio managers can express views in a portfolio?

1 Eugene F. Fama, “Efficient Capital Markets: A Review of Theory and Empirical Work,” Journal of Finance 25, no. 2 (1970): 383–417.

2 William F. Sharpe, “The Arithmetic of Active Management,” Financial Analysts Journal 47, no 1 (1976): 7–9.

3 Gary P. Brinson, G. Randolph Hood, and Gilbert L. Beebower, “Determinants of Portfolio Performance,” Financial Analysts Journal 42, no. 4 (1986): 39–44.

4 Gary P. Brinson, Gilbert L. Beebower, and Brain D. Singer, “Determinants of Portfolio Performance II: An update,” Financial Analysts Journal 47, no. 3 (1991): 40–48.

5 See, for examples, Roger G. Ibbotson and Paul D. Kaplan, “Does Asset Allocation Policy Explain 40, 90, or 100 Percent of Performance?” Financial Analysts Journal 56, no. 3 (2000): 26–33; Mark Kritzman and Sebastian Page, “The Hierarchy of ...

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