Show Summary Details

Page of

PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). © Oxford University Press, 2018. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a title in Oxford Handbooks Online for personal use (for details see Privacy Policy and Legal Notice).

date: 22 February 2020

(p. x) List of Figures

(p. x) List of Figures

  1. 3.1 Efficient frontiers for EAE portfolios with 100 securities. 47

  2. 4.1 Predicted and realized active risk for optimized solutions of varying quality. 56

  3. 4.2 Ex post vs. cx antc solution quality rankings. 56

  4. 4.3 Optimized and heuristic realized efficient frontiers — Example 1. 58

  5. 4.4 Optimized and heuristic realized efficient frontiers — Example 2. 59

  6. 6.1 Prior distributions and posterior distributions. 93

  7. 6.2 Predictive distributions in three scenarios. 94

  8. 6.3 Allocation to equities and bonds in three scenarios. 94

  9. 6.4 The posterior distribution of the correlation between an international portfolio INTL and the Fama—French MKT and SMB portfolios based on return data for 2008—2009. 106

  10. 6.5 A three-regime model for U.S. stocks based on weekly returns on the Fama—French portfolio MKT, SMB, and HML, from January 2000 to December 2009. 111

  11. 7.1 Box plots of out-of-sample log excess returns: Idealistic setup. 129

  12. 7.2 Box plots of out-of-sample log excess returns: Realistic setup. 130

  13. 8.1 Cumulative returns of five replication products, S&P 500, and HFRI Composite Index. 149

  14. 8.2 Scatter plot of the risk (S.D.) and annualized return (Mean) of replication products from Table 8.1. 150

  15. 9.1 Cross-sectional distribution of risk preferences. 168

  16. 9.2 Optimal centralized allocation. 169

  17. 9.3 Optimal decentralized allocation without benchmarks. 170

  18. 9.4 Required levels of managerial ability to justify decentralization. 171

  19. 9.5 Optimal benchmarks fixed income manager. 171

  20. 9.6 Optimal benchmarks equity manager. 172

  21. 10.1 Portfolio manager’s payoff under asymmetric fee compensation structure as a function of realized return. B is the flat fee, and rh is the hurdle point for asymmetric fee. 180

  22. (p. xi) 10.2 Portfolio manager’s payoff as a function of realized return under a fulcrum fee compensation structure. 181

  23. 10.3 Active efficient frontiers for portfolios with and without long-only investment constraints. 184

  24. 10.4 A simple three-stage-five-child scenario tree. 186

  25. 10.5 Active risk decisions at different investment stages under an asset-based fee structure. 190

  26. 10.6 The effects of a knockout barrier on active risk decisions with a proportional asset-based fee structure. 191

  27. 10.7 Active risk decisions at different investment stages under an asymmetric incentive fee structure. 192

  28. 10.8 The effects of a knockout barrier on active risk decisions with an asymmetric incentive fee structure. 194

  29. 10.9 Active risk decisions at different investment stages under a fulcrum fee structure. 195

  30. 10.10 The effects of a knockout barrier on active risk decisions with a fulcrum fee structure. 197

  31. 11.1 Optimal robust P and ψ for three normal distribution efficiencies. 207

  32. 11.2 OLS and robust beta estimates for four different outlier configurations. 209

  33. 11.3 Number of securities in the study. Squares represent the total number of firms in the CRSP U.S. Stock Database that have at least one weekly return in each contiguous two-year period. 211

  34. 11.4 Market capitalization lower quartile, median, and upper quartile break points for the liquid stocks included in the study, in millions of dollars. 213

  35. 11.5 Annualized excess market returns volatility. 214

  36. 11.6 OLS betas. 215

  37. 11.7 Robust betas. 216

  38. 11.8 Paired differences between OLS and robust betas. 218

  39. 11.9 Fractions of pairwise OLS and robust beta differences exceeding 0.25 (squares), 0.5 (circles), 0.75 (triangles), and 1 (diamonds) in absolute value. 219

  40. 11.10 Distribution of paired differences between OLS and robust betas. 220

  41. 11.11 OLS beta standard errors. 221

  42. 11.12 Ratios of OLS beta S.E.s to robust beta S.E.s. 222

  43. 11.13 OLS beta t-statistics. 223

  44. 11.14 Robust beta t-statistics. 224

  45. (p. xii) 11.15 Percentage of observations rejected with 99% efficiency. 225

  46. 11.16 Ratio of systematic risk to total risk for OLS betas. 228

  47. 11.17 Ratios of systematic risk to total risk for robust betas. 228

  48. 11.18 Paired differences between systematic and total risk ratios. 229

  49. 11.C1 Initial and final robust beta estimates for firm with ticker DD. 235

  50. 11.D1 Relative changes in market capitalization median and quartiles. 236

  51. 11.D2 Size (log of market capitalization in $M) percentiles for the liquid stocks. 236

  52. 11.D3 Annualized mean excess market returns. 237

  53. 11.E1 Jarque—Bera tests of normality of excess stock returns. 238

  54. 11.E2 Jarque—Bera tests without 1987 Black Monday outlier. 239

  55. 11.E3 Skewness percentages of JB statistic without 1987 Black Monday outlier. 239

  56. 11.E4 Normalized skewness without 1987 Black Monday outlier. 240

  57. 12.1 Risk-neutral option-implied distributions. 253

  58. 13.1 Graphical representation of the histories and truths used both in this chapter and in Markowitz and Usmen (2003). 268

  59. 13.2 Difference in the average expected utility (Bayes — Resampling) as a function of risk aversion (or ρ). 279

  60. 13.A1 Several normal densities, and one uniform density that could be used as priors for μ. 288

  61. 15.1 Public and private debt. 309

  62. 15.2 U.S. fixed income, 31 December 2009, $ trillions. 312

  63. 15.3 U.S. Treasury actives (par) and spot curves, November 2009. 314

  64. 15.4 Constant maturity U.S. Treasury 10-year rates, 1962—2009. 320

  65. 15.5 First differences of constant maturity U.S. Treasury 10-year rates. 321

  66. 15.6 10 year minus 1 year U.S. Treasury slope, 1962—2009. 322

  67. 15.7 Rate/slope correlations, 1963—2009. 323

  68. 15.8 Normalized series correlations, 1963—2009. 324

  69. 15.9 U.S. Treasury/Japanese Government bond correlations, 1976—2009. 327

  70. 15.10 Moody’s default rates, 1920—2009. 330

  71. 15.11 Differences between IG corporate bond yields and comparable U.S. Treasurys, 1920—2009. 331

  72. 15.12 Rate/spread change correlations by decade. 335

  73. 16.1 Lognormal vs. difference of lognormal. 342

  74. 16.2 Equation (16.3): P(L(T)/S(T) 〈 r), r = 1, T = 1, ρ = 6, GBM per Table 16.1. 344

  75. (p. xiii) 16.3 (a) Equation (16.4), r = 1, T = 1, λ = 6, GBM per Table 16.1; (b) Equations (16.3) and (16.4), r = 1, T = 1, λ = 6, GBM per Table 16.1. 346

  76. 16.4 Equation (16.6) P(L(T) — S(T) 〈 k), k = 0.5, T = 1, λ = 6, GBM per Table 16.1. 348

  77. 16.5 (a) Equation (16.7), k = 0.5, T = 1, λ = 6, ρ = 0.8, GBM perTable 16.1; (b) Equations (16.6) and (16.7) k = 0.5, T = 1, λ = 6, ρ = 0.8, GBM per Table 16.1. 350

  78. 16.6 Equations (16.6) and (16.7), k = 0.5, T = 1, λ = 2, ρ = 0.8, GBM per Table 16.1. 351

  79. 16.7 Equations (16.6) and (16.7), k = 0.5, T = 1, λ = 2, ρ = —0.5, GBM per Table 16.1. 351

  80. 16.8 Equation (16.6): Horizon value CDF, αL= 4%, σL= 20%, αS= 2%, σS= 15%, ρ = 30%, L(0) = 4.5, S(0) = 3.5, T = 1. 352

  81. 16.9 Equation (16.6): Horizon value CDF, αL= 4%, σL= 20%, αS= 2%, σS= 15%, ρ = 80%, L(0) = 4.5, S(0) = 3.5, T = 1. 353

  82. 16.10 Equation (16.6): Horizon value CDF, αL= —20%, σL= 20%, αS= 2%, σS= 15%, ρ = 30%, L(0) = 1.5, S(0) = 0.5, T = 1. 353

  83. 16.11 Equation (16.7): Stopping time CDF, αL= —2%, σL= 20%, αS= 2%, σS= 15%, ρ = 30%, L(0) = 1.5, S(0) = 0.5, K = 0.5. 354

  84. 16.12 Equation (16.7): Stopping time CDF, αL= 4%, σL= 20%, αS= 2%, σS= 15%, ρ = 80%, L(0) = 2.5, S(0) = 1.5, K = 0.8. 354

  85. 16.13 Equation (16.7): Stopping time CDF, αL= 4%, σL= 20%, αS= 2%, σS= 15%, ρ = 0%, L(0) = 4.5, S(0) = 3.5, K = 0.2. 355

  86. 16.14 Equation (16.8): Failure probability, αL= 0%, σL= 20%, αS= 0%, σS= 15%, ρ = 50%, L(0) = 2, S(0) = 1, T = 5, k = 0.5. 359

  87. 16.15 Equation (16.8): Failure probability αL= 4%, σL= 20%, αS= 2%, σS= 15%, ρ = 0%, L(0) = 1.5, S(0) = 0.5, T = 1, k = 0.8. 360

  88. 16.16 Equation (16.8) Failure probability, αL= 0%, σL= 20%, αS= 0%, σS= 15%, ρ = —20%, L(0) = 3, S(0) = 2, T = 5, k = 0.2. 361

  89. 16.17 Success probability, aL = 4%, σL= 20%, αS= 2%, σS= 15%, ρ = 0%, L(0) = 1.5, S(0) = 0.5, T = 10. 362

  90. 16.18 Incremental success probability, k = 1, T = 1, λ = 6, ρ = 0.8, GBM per Table 16.1. 363

  91. 16.A.1 Exact and approximate paths of S(T), αS= 2%, σS= 20%, K = 5. 365

  92. 17.1 Idealized market impact model showing sell of 200 shares. 373

  93. 17.2 Idealized market impact model showing two sells of 100 shares each. 374

  94. 18.1 Daily market-impact costs for U.S. indices trade lists up to $5 billion. 400

  95. 18.2 Optimal turnover rates for different levels of assets under management. 402

  96. (p. xiv) 18.3 Turnover optimality. 402

  97. 18.4 Net performance based on monthly rebalancing. 404

  98. 18.5 Turnover comparisons based on monthly rebalancing. 404

  99. 18.6 Return vs. realized turnover for different portfolio wealth. 408

  100. 18.7 Median trading volume, % of ADDV vs. realized turnover, $1Bn portfolio. 410

  101. 18.8 Optimal turnover fora given r and portfolio wealth. 410

  102. 18.9 Pre-tax net return vs. realized turnover. 411

  103. 18.10 Monthly return vs. realized turnover. 412

  104. 18.11 Net return vs. realized turnover. 415

  105. 18.12 Net return vs. realized turnover. 416

  106. 19.1 Credit spreads and debt-to-equity year-end values. 431

  107. 19.2 Historical beta — Selected industries. 435

  108. 19.3 Money supply measures. 444

  109. 19.4 Footnote overview of economic framework — Description of four quadrants. 445

  110. 20.1 Employer guarantee option for a 50—50 equity-bond mix. 459

  111. 20.2 Employer guarantee option suface. 459

  112. 20.3 Indexation option surface. 461

  113. 20.4 Employer share in total risk. 462

  114. 20.5 Option values and risk exposure under different investment strategies. 465

  115. 21.1 Stylized commodity fund. 471

  116. 21.2 Stylized excess reserve fund. 472

  117. 21.3 Net non-oil import shares (selected countries). 482

  118. 21.4 Cumulative returns on current GPF and alternative (net import weighted) portfolio from 1989 to 2009 (in NOK terms); see Chart 5 in Breedon and Kosowski (2009). 483

  119. 21.5 Balance of payments for sovereign wealth fund countries (1997—2007 average, % of GNI). 485

  120. 21.6 Ratio of reserves to M2 for developing economies (%). 487