Applied Asset and Risk Management: A Guide to Modern Portfolio Management and Behavior-Driven PDF
Preview Applied Asset and Risk Management: A Guide to Modern Portfolio Management and Behavior-Driven
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 More information about this series at 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 Marcus Schulmerich Yves-Michel Leporcher State Street Global Advisors (SSgA) Crédit Agricole Munich Paris Germany France Ching-Hwa Eu Deutsche Bank London U.K. ISSN 2192-8096 ISSN 2192-810X (electronic) ISBN 978-3-642-55443-8 ISBN 978-3-642-55444-5 (eBook) DOI 10.1007/978-3-642-55444-5 Springer Heidelberg New York Dordrecht London Library of Congress Control Number: 2014953007 © Springer-Verlag Berlin Heidelberg 2015 This work is subject to copyright. 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Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com) To my family Marcus Schulmerich To the only lady I have ever loved Yves-Michel Leporcher To my family who supported me throughout my life Ching-Hwa Eu Foreword Since the financial crisis, risk and finance practitioners have been even more keenly aware of the need to combine successfully practical and theoretical knowledge. Finance is an area where there are competing theories of asset pricing and empirical observations that can undermine confidence in our theoretical beliefs. Knowledge is evolving, even though some of the most intractable challenges and market failures appear to repeat themselves with alarming regularity; for example, the problems of spotting bubbles and avoiding market panics. This book is designed to meet the needs of students and practitioners in finance who wish to advance their knowledge of asset and risk management especially in equities, with a particular focus on bringing together theory and practical applica- 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, and observations from financial markets such as the flash crash, the Greek crisis, and others. It will help those who wish to understand many different types of stock market anomalies, and why they might arise in a nearly efficient market. The global financial crisis caused many to reexamine practices in the finance industry and to wonder whether there had been too strict an adherence to theoretical concepts at the expense of a more pragmatic or practical viewpoint. Thankfully, practitioners in the industry have not neglected theory, but have endeavored to build on it and blend it with practice, and by doing so learn from the events of 2007–2009. This book will help in that important job. Global Chief Investment Officer Richard Lacaille State Street Global Advisors (SSgA) August 2014 vii Preface In March 2014, when this book was finished and handed over to the publishers, more than 5 years had passed since the collapse of the U.S. investment bank Lehman Brothers. Yet, the consequences of this bankruptcy, which was the culminating point of the subprime crisis, can still be felt today. And when we look at the current status of the euro crisis, which itself was triggered by the subprime crisis, we find few convincing signs that the financial issues in Europe have really been fundamentally solved. The cepDefault-Index 2014, published in February 2014 by the cep (Center for European Policy, a think tank), shows that while the creditworthiness of countries like Ireland and Spain has improved, Greece is still far from having regained the 1 trust of the investors. The situation of France has remained unchanged, whereas the credit standing of Italy continues to decline. Surprisingly, for the first time, there are troubling signs of a deteriorating creditworthiness of Belgium and Finland, two core countries of the eurozone. The euro crisis and the subprime crisis are only the latest crises in a long line of historical financial meltdowns and stock market crashes. However, the frequency of these crashes has become higher and their impact has become more severe in the recent past. Therefore, when we deal with asset and risk management today, these extreme market situations should be considered, as we have endeavored to do in this book. This book takes a practical look at the rational and irrational aspects of investing. In financial research, these two sides of the coin are represented by modern portfolio theory and behavioral finance. The significance of both was recently highlighted by the decision of the Nobel Prize Committee to award the Nobel Prize in Economics to Eugene Fama, a proponent of a rational view of finance, as well as to Robert Shiller, who follows the approach of behavioral finance. This book is intended to serve as a comprehensive introduction to asset and risk management for bachelor and master students in this field as well as for young professionals in the asset management industry. In addition, the account of the actual 1Gerken and Kullas (2014, p. 1). ix
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