Portfolio Management
Portfolio Theory and Management

Authors: Editors: H. Kent Baker, Greg Filbeck
Editions: Oxford University Press
Pages: 672 pages
Date: February 2013
Portfolio management is an ongoing process of constructing portfolios that balances an investor's objectives with the portfolio manager's expectations about the future. This dynamic process provides the payoff for investors. Portfolio management evaluates individual assets or investments by their contribution to the risk and return of an investor's portfolio rather than in isolation. This is called the portfolio perspective. Thus, by constructing a diversified portfolio, a portfolio manager can reduce risk for a given level of expected return, compared to investing in an individual asset or security. According to modern portfolio theory (MPT), investors who do not follow a portfolio perspective bear risk that is not rewarded with greater expected return. Portfolio diversification works best when financial markets are operating normally compared to periods of market turmoil such as the 2007-2008 financial crisis. During periods of turmoil, correlations tend to increase thus reducing the benefits of diversification.

Portfolio management today emerges as a dynamic process, which continues to evolve at a rapid pace. The purpose of Portfolio Theory and Management is to take readers from the foundations of portfolio management with the contributions of financial pioneers up to the latest trends emerging within the context of special topics. The book includes discussions of portfolio theory and management both before and after the 2007-2008 financial crisis. This volume provides a critical reflection of what worked and what did not work viewed from the perspective of the recent financial crisis. Further, the book is not restricted to the U.S. market but takes a more global focus by highlighting cross-country differences and practices.

This 30-chapter book consists of the following sections:
  • Portfolio Theory and Asset Pricing
  • The Investment Policy Statement and Fiduciary Duties
  • Asset Allocation and Portfolio Construction
  • Risk Management
  • Portfolio Execution, Monitoring, and Rebalancing
  • Evaluating and Reporting Portfolio Performance
  • Special Topics
Abraham Lioui, Professor of Finance at EDHEC Business School, contributed a chapter to the publication entitled "Benchmarking", together with Patrice Poncet.

Cesare Robotti, Financial Economist and Associate Policy Adviser at the Federal Reserve Bank of Atlanta, and Affiliate Professor, EDHEC Risk Institute, co-authored the chapter on "Asset Pricing Theories, Models, and Tests" with Nikolay Gospodinov.

About the Editors:

H. Kent Baker is Professor of Finance at American University.

Greg Filbeck is the Samuel P. Black III Professor of Insurance and Risk Management at Pennsylvania State University.

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