Portfolio construction is fundamental to the investment management process. In the 1950s, Harry Markowitz demonstrated the benefits of efficient diversification by formulating a mathematical program for generating the ‘efficient frontier’ to summarize optimal trade-offs between expected return and risk. The Markowitz framework continues to be used as a basis for both practical portfolio construction and emerging research in financial economics. Such concepts as the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT), for example, provide the foundation for setting benchmarks, for predicting returns and risk, and for performance measurement. This volume showcases original essays by some of today’s most prominent academics and practitioners in the field on the contemporary application of Markowitz techniques. Covering a wide spectrum of topics, including portfolio selection, data mining tests, and multi-factor risk models, the book presents a comprehensive approach to portfolio construction tools, models, frameworks, and analyses, with both practical and theoretical implications.
Table of ContentMarkowitz for the Masses: Portfolio Construction Techniques.- Markowitz for the Masses: The Risk and Return of Equity and Portfolio Construction Techniques.- Markowitz and the Expanding Definition of Risk: Applications of Multi-factor Risk Models.- Markowitz Applications in the 1990s and the New Century: Data Mining Corrections and the 130/30.- Markowitz’s Mean–Variance Rule and the Talmudic Diversification Recommendation.- On the Himalayan Shoulders of Harry Markowitz.- Models for Portfolio Revision with Transaction Costs in the Mean–Variance Framework.- Principles for Lifetime Portfolio Selection: Lessons from Portfolio Theory.- Harry Markowitz and the Early History of Quadratic Programming.- Ideas in Asset and Asset–Liability Management in the Tradition of H.M. Markowitz.- Methodologies for Isolating and Assessing the Portfolio Performance Potential of Stock Return Forecast Models with an Illustration.- Robust Portfolio Construction.- Owitz and the Expanding Definition of Risk: Applications of Multi-Factor Risk Models.- Applying Markowitz’s Critical Line Algorithm.- Factor Models in Portfolio and Asset Pricing Theory.- Applications of Markowitz Portfolio Theory To Pension Fund Design.- Global Equity Risk Modeling.- What Matters Most in Portfolio Construction?.- Risk Management and Portfolio Optimization for Volatile Markets.- Applications of Portfolio Construction, Performance Measurement, and Markowitz Data Mining Corrections Tests.- Linking Momentum Strategies with Single-Period Portfolio Models.- Reflections on Portfolio Insurance, Portfolio Theory, and Market Simulation with Harry Markowitz.- Evaluating Hedge Fund Performance: A Stochastic Dominance Approach.- Multiportfolio Optimization: A Natural Next Step.- Alternative Model to Evaluate Selectivity and Timing Performance of Mutual Fund Managers: Theory and Evidence.- Case Closed.- Stock-Selection Modeling and Data Mining Corrections: Long-Only Versus 130/30 Models.- Distortion Risk Measures in Portfolio Optimization.- A Benefit from the Modern Portfolio Theory for Japanese Pension Investment.- Private Valuation of Contingent Claims in a Discrete Time/State Model.- Volatility Timing and Portfolio Construction Using Realized Volatility for the S&P500 Futures Index.- The Application of Modern Portfolio Theory to Real Estate: A Brief Survey.- Erratum.