O'Reilly logo

Intermediate Financial Theory, 3rd Edition by John B. Donaldson, Jean-Pierre Danthine

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Chapter 7

Risk Aversion and Investment Decisions, Part III

Challenges to Implementation

Chapter 7 introduces important issues in portfolio construction. In particular, it considers the biases that may be introduced when the mean returns for the individual securities being considered for portfolio inclusion are estimated with error. The tendency for world stock markets to move in tandem during periods of large adverse economic events, and the consequent loss of the gains to diversification at critical periods, is discussed. The relative riskiness of stock market investing over the short and long run time horizons is also considered.

Keywords

modern portfolio theory; parameter uncertainty; cross-correlations; random walk model; predictive variance ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required