April 2011
Beginner
704 pages
21h 44m
English
book
The Theory and Practice of Investment Management: Asset Allocation, Valuation, Portfolio Construction, and Strategies, Second Edition
by Frank J. Fabozzi, Harry M. Markowitz
Content preview from The Theory and Practice of Investment Management: Asset Allocation, Valuation, Portfolio Construction, and Strategies, Second Edition
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KEY POINTS
• Market-neutral long-short portfolios purchase undervalued securities that are expected to increase in price over the investment horizon while selling short an approximately equal dollar amount of overvalued securities that are expected to decline in price.
• Choosing long and short positions with roughly similar average sensitivities to the overall equity market essentially eliminates portfolio exposure to the underlying market (portfolio systematic return and risk).
• Portfolio construction should use an integrated optimization that considers long and short portfolio positions simultaneously; combining a long-only portfolio with a separately optimized short-only portfolio offers no real benefits over a long-only portfolio.
• Integrated optimization frees a long-short portfolio from benchmark constraints and thus improves the portfolio’s ability to pursue returns and control risks.
• Integrated optimization is vital not only for market-neutral portfolio construction, but also for equitized long-short portfolios and enhanced active equity strategies such as 120-20 and 130-30 portfolios.
• While a properly constructed market-neutral long-short portfolio does not offer the systematic return and risk of the market from which the securities were selected, that systematic return and risk can be added back by purchasing an equity market overlay such as stock index futures.
• An equitized long-short portfolio combines the passive performance of the underlying market with ...
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