Applied Asset and Risk Management: A Guide to Modern Portfolio Management and Behavior-Driven Markets PDF
Preview Applied Asset and Risk Management: A Guide to Modern Portfolio Management and Behavior-Driven Markets
Management for Professionals Marcus Schulmerich Yves-Michel Leporcher Ching-Hwa Eu Applied Asset and Risk Management A Guide to Modern Portfolio Management and Behavior-Driven Markets Management for Professionals Moreinformationaboutthisseriesat http://www.springer.com/series/10101 Marcus Schulmerich Yves-Michel Leporcher Ching-Hwa Eu Applied Asset and Risk Management A Guide to Modern Portfolio Management and Behavior-Driven Markets 123 MarcusSchulmerich Yves-MichelLeporcher StateStreetGlobalAdvisors(SSgA) CréditAgricole Munich Paris Germany France Ching-HwaEu DeutscheBank London U.K. ISSN2192-8096 ISSN2192-810X(electronic) ISBN978-3-642-55443-8 ISBN978-3-642-55444-5(eBook) DOI10.1007/978-3-642-55444-5 SpringerHeidelbergNewYorkDordrechtLondon LibraryofCongressControlNumber:2014953007 ©Springer-VerlagBerlinHeidelberg2015 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof thematerialisconcerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation, broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionorinformation storageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilarmethodology nowknownorhereafterdeveloped.Exemptedfromthislegalreservationarebriefexcerptsinconnection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher’slocation,initscurrentversion,andpermissionforusemustalwaysbeobtainedfromSpringer. PermissionsforusemaybeobtainedthroughRightsLinkattheCopyrightClearanceCenter.Violations areliabletoprosecutionundertherespectiveCopyrightLaw. Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant protectivelawsandregulationsandthereforefreeforgeneraluse. While the advice and information in this book are believed to be true and accurate at the date of publication,neithertheauthorsnortheeditorsnorthepublishercanacceptanylegalresponsibilityfor anyerrorsoromissionsthatmaybemade.Thepublishermakesnowarranty,expressorimplied,with respecttothematerialcontainedherein. Printedonacid-freepaper SpringerispartofSpringerScience+BusinessMedia(www.springer.com) Tomyfamily Marcus Schulmerich To theonlyladyIhaveeverloved Yves-Michel Leporcher Tomyfamilywho supportedmethroughoutmylife Ching-Hwa Eu Foreword Sincethefinancialcrisis,riskandfinancepractitionershavebeenevenmorekeenly aware of the need to combine successfully practical and theoretical knowledge. Financeisanareawheretherearecompetingtheoriesofassetpricingandempirical observationsthatcanundermineconfidenceinourtheoreticalbeliefs.Knowledgeis evolving,eventhoughsomeofthemostintractablechallengesandmarketfailures appeartorepeatthemselveswithalarmingregularity;forexample,theproblemsof spottingbubblesandavoidingmarketpanics. Thisbookisdesignedtomeettheneedsofstudentsandpractitionersinfinance who wish to advance their knowledgeof asset and risk managementespecially in equities,with a particularfocusonbringingtogethertheoryand practicalapplica- tions. It will bring experienced practitioners up to date with recent developments and advances in theory and puts into context behavioral finance, traditional asset pricing,andobservationsfromfinancialmarketssuchastheflashcrash,theGreek crisis,andothers.Itwillhelpthosewhowishtounderstandmanydifferenttypesof stockmarketanomalies,andwhytheymightariseinanearlyefficientmarket. The global financial crisis caused many to reexamine practices in the finance industryandtowonderwhethertherehadbeentoostrictanadherencetotheoretical concepts at the expense of a more pragmatic or practical viewpoint. Thankfully, practitionersintheindustryhavenotneglectedtheory,buthaveendeavoredtobuild onitandblenditwithpractice,andbydoingsolearnfromtheeventsof2007–2009. Thisbookwillhelpinthatimportantjob. GlobalChiefInvestmentOfficer RichardLacaille StateStreetGlobalAdvisors(SSgA) August2014 vii Preface In March 2014, when this book was finished and handed over to the publishers, morethan5yearshadpassedsincethecollapseoftheU.S.investmentbankLehman Brothers.Yet,theconsequencesofthisbankruptcy,whichwastheculminatingpoint ofthesubprimecrisis,canstillbefelttoday.Andwhenwelookatthecurrentstatus of the euro crisis, which itself was triggered by the subprime crisis, we find few convincingsignsthatthefinancialissuesinEuropehavereallybeenfundamentally solved. ThecepDefault-Index2014,publishedin February2014bythecep(Centerfor EuropeanPolicy,a think tank),showsthatwhile the creditworthinessof countries like Ireland and Spain has improved, Greece is still far from having regained the trust of the investors.1 The situation of France has remained unchanged, whereas thecreditstandingofItalycontinuestodecline.Surprisingly,forthefirsttime,there aretroublingsignsofadeterioratingcreditworthinessofBelgiumandFinland,two corecountriesoftheeurozone. Theeurocrisisandthesubprimecrisisareonlythelatestcrisesinalonglineof historicalfinancialmeltdownsandstockmarketcrashes.However,thefrequencyof these crashes has become higher and their impact has become more severe in the recentpast.Therefore,whenwe dealwithassetandriskmanagementtoday,these extrememarketsituationsshouldbeconsidered,aswehaveendeavoredtodointhis book. Thisbooktakesapracticallookattherationalandirrationalaspectsofinvesting. Infinancialresearch,thesetwosidesofthecoinarerepresentedbymodernportfolio theoryandbehavioralfinance.Thesignificanceofbothwasrecentlyhighlightedby thedecisionoftheNobelPrizeCommitteetoawardtheNobelPrizeinEconomics to Eugene Fama, a proponent of a rational view of finance, as well as to Robert Shiller,whofollowstheapproachofbehavioralfinance. Thisbookisintendedtoserveasacomprehensiveintroductiontoassetandrisk management for bachelor and master students in this field as well as for young professionalsintheassetmanagementindustry.Inaddition,theaccountoftheactual 1GerkenandKullas(2014,p.1). ix
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