Volume I: Financial Markets and Instruments skillfully covers the general characteristics of different asset classes, derivative instruments, the markets in which. View Table of Contents for Handbook of Finance Volume 1: Financial Markets and Instruments skillfully covers the general characteristics of. and fixed-income securities, the properties of financial markets, the gen- . The Handbook of Financial Instruments provides the most compre- hensive coverage ital Asset Prices,” Journal of Finance (September ), pp.
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Dr. Frank J. Fabozzi, PhD, CFA (New Hope, PA) is Professor in the Practice of Finance at Yale University's School of Management and the Editor of the Journal . June 25, HANDBOOK OF FINANCE VOLUME I Financial Markets and Instruments Frank J. Fabozzi Editor John Wiley & Sons. The Handbook of Fixed Income Securities - Frank bestthing.info . Financial Analysis Indenture Provisions Utilities Finance Companies . Part 3 covers bonds (domestic and foreign), money market instruments, and structured.
Other terms commonly used to describe this area of finance are asset management, portfolio management, money management, and wealth management. We describe these activities in Chapter Setting investment objectives starts with a thorough analysis of what the entity wants to accomplish.
This task begins with the asset allocation decision i. Next, a portfolio strategy that is consistent with the investment objectives and investment policy guidelines must be selected. In general, portfolio strategies are classified as either active or passive. Selecting the specific financial assets to include in the portfolio, which is referred to as the portfolio selection problem, is the next step.
The theory of portfolio selection was formulated by Harry Markowitz in The latter parameter is a measure of risk. An important task is the evaluation of the performance of the asset manager. This task allows a client to determine answers to questions such as: How did the asset manager perform after adjusting for the risk associated with the active strategy employed?
And, how did the asset manager achieve the reported return? Our discussion in Chapter 17 provides the principles of investment management applied to any asset class e.
In Chapters 18 and 19, we focus on equity and bond portfolio management, respectively. In Chapter 18, we describe the different stock market indicators followed by the investment community, the difference between fundamental and technical strategies, the popular stock market active strategies employed by asset managers including equity style management, the types of stock market structures and locations in which an asset manager may trade, and trading mechanics and trading costs.
In Chapter 19, we cover bond portfolio management, describing the sectors of the bond market and the instruments traded in those sectors, the features of bonds, yield measures for bonds, the risks associated with investing in bonds and how some of those risks can be quantified e.
We explain and illustrate the use of derivatives in equity and bond portfolios in Chapters 20 and In the absence of derivatives, the implementation of portfolio strategies is more costly. Though the perception of derivatives is that they are instruments for speculating, we demonstrate in these two chapters that they are transactionally efficient instruments to accomplish portfolio objectives. In Chapter 20, we introduce stock index futures and Treasury futures, explaining their basic features and illustrating how they can be employed to control risk in equity and bond portfolios.
We also explain how the unique features of these contracts require that the basic pricing model that we explained Chapter 6 necessitates a modification of the pricing model. We focus on options in Chapter In this chapter, we describe contract features and explain the role of these features in controlling risk.
SUMMARY The three primary areas of finance, namely capital markets, financial management, and investment management, are connected by the fundamental threads of finance: risk and return. In this book, we introduce you to these What Is Finance?
Our goal in this book is to provide a comprehensive view of finance, which will enable you to learn about the principles of finance, understand how the different areas of finance are interconnected, and how financial decision-makers manage risk and returns.
The concept that must be understood to determine the value of an investment, the yield on an investment, and the cost of funds is the time value of money. We also introduce the basic principles of valuation. In this chapter, we introduce the mathematical process of translating a value today into a value at some future point in time, and then show how this process can be reversed to determine the value today of some future amount. We then show how these mathematics can be used to calculate the yield on an investment.
The notion that money has a time value is one of the most basic concepts in investment analysis. One dollar one year from now is not as valuable as one dollar today. After all, you can invest a dollar today and earn interest so that the value it grows to next year is greater than the one dollar today. Reason 2: Cash flows are uncertain. Translating a current value into its equivalent future value is referred to as compounding.
This chapter outlines the basic mathematical techniques used in compounding and discounting. Probably not. There are two things to consider. Floating-Rate Securities The coupon rate on a debt instrument need not be fixed over its life. Floating-rate securities, sometimes called floaters or variable-rate securities, have coupon payments that reset periodically according to some reference rate.
The quoted margin is expressed in terms of basis points. A basis point is equal to 0. Suppose that the quoted margin is basis points. The reference rate for most floating-rate securities is an interest rate or an interest rate index.
There are some issues where this is not the case. Instead, the reference rate is the rate of return on some financial index such as one of the stock market indexes. There are debt obligations whose coupon reset formula is tied to an inflation index.
Typically, the coupon reset formula on floating-rate securities is such that the coupon rate increases when the reference rate increases, and decreases when the reference rate decreases. There are issues whose coupon rate moves in the opposite direction from the change in the reference rate.
Such issues are called inverse floaters or reverse floaters. A floating-rate debt instrument may have a restriction on the maximum coupon rate that will be paid at a reset date. The maximum coupon rate is called a cap.
Both parties are obligated to perform, and neither party charges a fee. An option contract gives the owner of the contract the right, but not the obligation, to download or sell a financial instrument at a specified price from or to another party.
The downloader of the contract must pay the seller a fee, which is called the option price. When the option grants the owner of the option the right to download a financial instrument from the other party, the option is called a call option.
If, instead, the option grants the owner of the option the right to sell a financial instrument to the other party, the option is called a put option. Derivative instruments are not limited to financial instruments. In this handbook we will describe derivative instruments where the underlying asset is a financial asset, or some financial benchmark such as a stock index or an interest rate, or a credit spread. These include swaps, caps, and floors. SUMMARY Financial instruments can be classified by the type of claim that the holder has on the issuer debt and equity and cash and derivative instruments.
With debt instruments there is an interest rate that is specified by contract. It could be a fixed interest rate or a floating interest rate. Handbook of Inflation Indexed Bonds. Hoboken, NJ: Fabozzi, F. Investing in Asset-Backed Securities. Investing in Commercial MortgageBacked Securities. The Handbook of Financial Instruments. The Handbook of Fixed Income Securities, 7th edition. New York: The Handbook of Mortgage-Backed Securities, 6th edition.
Capital Markets: Institutions and Instruments, 3rd edition. Upper Saddle River, NJ: Prentice Hall. Foundations of Financial Markets and Institutions, 3rd edition.
Investing in Emerging Fixed Income Markets. The investment management process involves five steps: The investment process involves the analysis of the investment objectives of the entity whose funds are being invested. Given the investment objectives, an investor must then establish policy guidelines to satisfy the investment objectives.
This phase begins with the decision as to how to allocate funds across the major asset classes and requires a thorough understanding of the risks associated with investing in each asset class. After establishing the investment objectives and the investment policy, the investor must develop a portfolio strategy. Portfolio strategies can be classified as either active or passive. The next step is to construct the portfolio by selecting the specific financial instruments to be included in the portfolio.
Periodically, the investor must evaluate the performance of the portfolio and therefore the portfolio strategy. This step begins with the calculation of the investment return and then evaluates that return relative to the portfolio risk. We will explain these fundamentals in terms of the steps that are involved in investing.
These steps include setting investment objectives, establishing an investment policy, selecting a portfolio strategy, constructing a portfolio, and evaluating performance.
These entities can be classified as individual investors and institutional investors. The objectives of an individual investor may be to accumulate funds to download a home or other major acquisition, to have sufficient funds to be able to retire at a specified age, or to accumulate funds to pay for college tuition for children.
Institutional investors include: In general we can classify institutional investors into two broad categories—those that must meet contractually specified liabilities and those that do not. Setting policy begins with the asset allocation decision.
In making the asset allocation decision, investors will look at the risk and return characteristics of the asset classes in which they may invest and the correlation between the returns of each asset class. We define what is meant by an asset class and the notion of risk in the sections to follow. The asset allocation will take into consideration any investment constraints or restrictions. Asset allocation models are commercially available for assisting those individuals responsible for making this decision.
In the development of investment policies, the following factors must be considered: Common stock and bonds are further divided into other asset classes.
For U. It is equal to the total market value of all of the common stock outstanding for that company. Developed market foreign stocks Emerging market foreign stocks Developed market foreign bonds Emerging market foreign bonds In addition to the traditional asset classes listed above, there are asset classes commonly referred to as alternative asset classes.
Some of the more popular ones include hedge funds, private equity, venture capital, and managed futures. How does one define an asset class? One highly respected investment manager, Mark Kritzman , p. They believe that investors will be more inclined to allocate funds to their products if they are viewed as an asset class rather than merely as an investment strategy. Along with the designation of an investment as an asset class comes a barometer to be able to quantify performance—the risk, return, and the correlation of the return of the asset class with that of other asset classes.
If an investor wants exposure to a particular asset class, he or she must be able to download a sufficient number of the individual securities comprising the asset class. This means that if an investor wants exposure to the U. Large-Cap Equity U. Large-Cap Growth U. Mid-Cap Equity U. Small-Cap Equity U. Small-Cap Value U. For institutional investors, acquiring a sufficient number of individual securities comprising an asset class is often not a problem.
However, for individual investors, obtaining exposure to an asset class by downloading a sufficient number of individual securities is not simple. How can individual investors accomplish this? Fortunately, there is an investment vehicle that can be used to obtain exposure to asset classes in a cost-effective manner.
The vehicle is an investment company, more popularly referred to as a mutual fund. This investment vehicle is the subject of Chapter 60 in Volume I.
For now, what is important to understand is that there are mutual funds that invest primarily in specific asset classes. Such mutual funds offer investors the opportunity to gain exposure to asset classes without having expertise in the management of the individual securities in that asset class and by investing a sum of money that, in the absence of a mutual fund, would not allow the investor to acquire a sufficient number of individual assets to obtain the desired exposure. Risks Associated with Investing There are various measures of risk.
We will describe each of them here. Today, the most commonly accepted definition of risk is one that involves a well-known statistical measure known as the variance.
The variance of a random variable is a measure of the dispersion of the possible outcomes around the expected value. There are two criticisms of the use of the variance as a measure of risk. Investors, however, do not view possible returns above the expected return as an unfavorable outcome. In fact, such outcomes are favorable. Because of this, some researchers have argued that measures of risk should not consider the possible returns above the expected return.
Various measures of downside risk, such as risk of loss and value at risk, are currently being used by practitioners. The second criticism is that the variance is only one measure of how the returns vary around the expected return.
When a probability distribution is not symmetrical around its expected return, then a statistical measure of the skewness of a distribution should be used in addition to the variance. One way of reducing the risk associated with holding an individual security is by diversifying. Often, one hears investors talking about diversifying their portfolio. By this an investor means constructing a portfolio in such a way as to reduce portfolio risk without sacrificing return.
This is certainly a goal that investors should seek. However, the question is, how does one do this in practice?
Some investors would say that a portfolio can be diversified by including assets across all asset classes. For example, one investor might argue that a portfolio should be diversified by investing in stocks, bonds, and real estate.
While that might be reasonable, two questions must be addressed in order to construct a diversified portfolio. First, how much should be invested in each asset class?
Second, given the allocation, which specific stocks, bonds, and real estate should the investor select? Some investors who focus only on one asset class such as common stock argue that such portfolios should also be diversified.
By this they mean that an investor should not place all funds in the stock of one company, but rather should include stocks of many companies.
Here, too, several questions must be answered in order to construct a diversified portfolio. First, which companies should be represented in the portfolio?
Second, how much of the portfolio should be allocated to the stocks of each company? Prior to the development of portfolio theory by Harry Markowitz , while investors often talked about diversification in these general terms, they never provided the analytical tools by which to answer the questions posed here.
Markowitz demonstrated that a diversification strategy should take into account the degree of covariance or correlation between asset returns in a portfolio. The covariance or correlation of asset returns is a measure of the degree to which the returns on two assets vary or change together. Markowitz 12 c02 June 24, 9: It is the concern for maintaining return, while lowering risk through an analysis of the covariance between security returns, that separates Markowitz diversification from other approaches suggested for diversification and makes it more effective.
The principle of Markowitz diversification states that as the correlation covariance between the returns for assets that are combined in a portfolio decreases, so does the variance of the return for that portfolio. The good news is that investors can maintain expected portfolio return and lower portfolio risk by combining assets with lower and preferably negative correlations.
However, the bad news is that very few assets have small to negative correlations with other assets. The problem, then, becomes one of searching among a large number of assets in an effort to discover the portfolio with the minimum risk at a given level of expected return or, equivalently, the highest expected return at a given level of risk. Systematic versus Unsystematic Risk The total risk of an asset or a portfolio can be divided into two types of risk: It is also called undiversifiable risk or market risk.
Systematic risk is the minimum level of risk that can be attained for a portfolio by means of diversification across a large number of randomly chosen assets. As such, systematic risk is that which results from general market and economic conditions that cannot be diversified away. It is also called diversifiable risk, unique risk, residual risk, idiosyncratic risk, or company-specific risk. This is the risk that is unique to a company, such as a strike, the outcome of unfavorable litigation, or a natural catastrophe.
How diversification reduces unsystematic risk for portfolios is illustrated in Figure 2. This variance represents the total risk for the portfolio systematic plus unsystematic. The horizontal axis shows the number of holdings of different assets e. As can be seen, as the number of asset holdings increases, the level of unsystematic risk is almost completely eliminated that is, diversified away.
Studies of different asset classes support this. For example, for common stock, several studies suggest that a portfolio size of about 20 randomly selected companies will completely eliminate unsystematic risk leaving only systematic risk. The first study of this type was by Wagner and Lau In the case of corporate bonds, generally less than 40 corporate issues are needed to eliminate unsystematic risk.
The relationship between the movement in the price of an asset and the market can be estimated statistically.
There are two products of the estimated relationship that investors use. The first is the beta of an asset. Hence, beta is referred to as an index of systematic risk due to general market conditions that cannot be diversified away.
For example, if an asset has a beta of 1. The beta for the market is 1. A beta greater than 1 means that the systematic risk is greater than that of the market; a beta less than 1 means that the systematic risk is less than that of the market. Brokerage firms, vendors such as Bloomberg, and online Internet services provide information on beta for common stock.
The second product is the ratio of the amount of systematic risk relative to the total risk. This ratio is called the coefficient of determination or R-squared.
This ratio varies from 0 to 1. A value of 0. For individual assets, this ratio is typically low because there is a good deal of unsystematic risk. However, through diversification the ratio increases as unsystematic risk is reduced see Figure 2. Common stock is viewed by some as having little inflation risk.
For all but inflation protection bonds, an investor is exposed to inflation risk by investing in fixed-rate bonds because the interest rate the issuer promises to make is fixed for the life of the issue. There are several forms of credit risk: Default risk is defined as the risk that the issuer will fail to satisfy the terms of the obligation with respect to the timely payment of interest and repayment of the amount borrowed thereby forcing the issuer into bankruptcy.
All investors in a bankrupt entity common stockholders and bondholders will realize a decline in the value of their security as a result of bankruptcy. In the case of bonds, investors gauge the credit risk of an entity by looking at the credit ratings assigned to issues by rating companies, popularly referred to as rating agencies. There are three rating agencies in the United States: When the credit rating of a bond is lowered by a rating agency, this action by a rating agency is referred to as the downgrading of a bond.
The risk that a bond will be downgraded is called downgrade risk. Credit spread risk is the risk that credit spreads in the market will increase resulting in poor performance of the bonds owned. Liquidity Risk When an investor wants to sell an asset, he or she is concerned whether the price that can be obtained from dealers is close to the true value of the asset. Liquidity risk is the risk that the investor will have to sell an asset below its true value where the true value is indicated by a recent transaction.
The primary measure of liquidity is the size of the spread between the bid price the price at which a dealer is willing to download an asset and the ask price the price at which a dealer is willing to sell an asset. The wider the bid-ask spread, the greater the liquidity risk. Liquidity risk is also important for portfolio managers that must mark to market positions periodically.
For example, the manager of a mutual fund is required to report the market value of each holding at the end of each business day. This means accurate price information must be available. Some assets do not trade frequently and are therefore difficult to price. Exchange Rate or Currency Risk An asset whose payments are not in the domestic currency of the investor has unknown cash flows in the domestic currency.
If the euro depreciates relative to the U. Risks for Bonds There are systematic risks that affect bond returns in addition to those described above. Interest Rate Risk The price of a bond changes as interest rates change.
Specifically, price moves in the opposite direction to the change in interest rates. That is, if interest rates increase, the price of a bond will decline; if interest rates decrease, the price of a bond will increase.
This is the reason a bond will sell above its par value that is, sell at a premium or below its par value that is, sell at a discount. The risk that the price of a bond or bond portfolio will decline when interest rates increase is called interest rate risk.
The sensitivity of the price of a bond to changes in interest rates depends on the following factors: Consequently, the price of a zero-coupon bond with a long maturity is highly sensitive to changes in interest rates. The price sensitivity is even greater in a low interest rate environment than in a high interest rate environment. For money market instruments, since their maturity is less than one year, the price is not very sensitive to changes in interest rates. The price sensitivity of a bond to changes in interest rates can be estimated.
This measure is called the duration of a bond. Duration is the approximate percentage change in the price of a bond for a basis-point change in interest rates. Given the price of a bond and its duration, the dollar price change can be estimated.
The concept of duration applies to a bond portfolio also.
How is duration computed? First, two prices are computed. One is based on an increase in interest rates and the second is based on a decrease in interest rates. Duration is then computed as follows: But regardless of the rate change used, the interpretation is still that it is the approximate percentage price change for a basis-point change in rates.
There are limitations of duration that the investor should recognize. First, in calculating duration or using the duration provided by financial consultants or fund managers, it is assumed that the prices calculated in the numerator are done properly. This is not a problem for simple bonds.
However, there are bonds where if interest rates are changed the estimated price must be estimated by complex pricing models. In turn, those models are based on several assumptions. So, for example, it is not surprising that two brokers providing information on duration for a complex bond could have materially different estimates. One broker could report a duration of four while another a duration of six!
Moreover, mutual fund managers who manage a portfolio containing a large allocation to complex bonds could report a duration that is significantly different than the true price sensitivity of the fund to changes in interest rates due to improperly calculating the duration of the complex bonds. The second limitation of duration is that it is a good approximation for small changes in interest rates e. This does not mean that it is not useful for giving the investor a feel for the price sensitivity of a bond or a portfolio.
The third limitation has to do with the duration of a portfolio. In computing the duration of the portfolio, first the duration of each bond in the portfolio is computed. Then a weighted average of the duration of the bonds in the portfolio is computed to get the portfolio duration.
The limitation comes about because it is assumed that the interest rate for all maturities change by the same number of basis points. First, the cash flow pattern of a callable bond is not known with certainty because it is not known when the bond will be called. Finally, the price appreciation potential of a bond will be reduced relative to an otherwise comparable bond without a call provision. Because of these three disadvantages faced by the investor, a callable bond is said to expose the investor to call risk.
The same disadvantages apply to mortgagebacked and asset-backed securities where the borrower can prepay. In this case the risk is referred to as prepayment risk. Reinvestment Risk Reinvestment risk is the risk that proceeds available for reinvestment must be reinvested at a lower interest rate than the instrument that generated the proceeds.
In addition to reinvestment risk when investing in a callable or prepayable bond, reinvestment risk occurs when an investor downloads a bond and relies on the yield of that bond as a measure of return potential.
This point we be discussed later. An active portfolio strategy uses available information and forecasting techniques to seek a better performance than a portfolio that is simply diversified broadly.
Essential to all active strategies are expectations about the factors that influence the performance of an asset class. For example, with active common stock strategies this may include forecasts of future earnings, dividends, or price-to-earnings ratios. With bond portfolios that are actively managed, expectations may involve forecasts of future interest rates and sector spreads. Active portfolio strategies involving foreign securities may require forecasts of local interest rates and exchange rates.
A passive portfolio strategy involves minimal expectational input, and instead relies on diversification to match the performance of some index. In effect, a passive strategy assumes that the marketplace will reflect all available information in the price paid for securities. Between these extremes of active and passive strategies, new strategies have sprung up that have elements of both.
For example, the core of a portfolio may be passively managed with the balance actively managed. By marketplace price efficiency we mean how difficult it would be to earn a greater return than passive management after adjusting for the risk associated with a strategy and the transaction costs associated with implementing that strategy.
If an asset class is highly price efficient, the investor would want to pursue a passive strategy. The most common passive strategy is indexing. In indexing, the investor designs a portfolio so that it will replicate the performance of the index. There are trading arrangements that have been developed in some markets that allow for more efficient execution of trades so as to minimize transaction costs and therefore the likelihood that the indexed portfolio will underperform the index.
In the case of unavailable securities or a universe of securities so large that it is impractical to acquire all the securities in the index, there are methodologies that can be used to minimize the risk of not matching the index. An efficient portfolio is one that provides the greatest expected return for a given level of risk, or equivalently, the lowest risk for a given expected return. Constructing an Indexed Portfolio As just mentioned, an investor who pursues the most popular form of a passive strategy, indexing, will assemble a portfolio that attempts to match the performance of the index.
In theory, it is quite simple to do. An investor can download every security in the index.
The amount downloadd of a particular security should be equal to the percentage of that security in the index. From a practical perspective, it may be difficult to download all the securities comprising an index for several reasons.
First, transaction costs from downloading and rebalancing the indexed portfolio may be too expensive, resulting in the underperformance of the indexed portfolio relative to the index. Second, the amount to be invested may be such that all of the securities comprising the index cannot be acquired. Finally, in some indexes not all of the securities can be acquired without great difficulty.
For example, in the case of indexing to match the performance of a bond index, some of the bond issues included in the index may not trade frequently and are difficult to acquire. For individuals, index replication is typically not accomplished by downloading individual securities.
Rather, if available, a mutual fund that has as its objective the creation of a portfolio to replicate an index can be downloadd. This overcomes the problems of the individual investor creating the indexed portfolio. Managers of mutual funds have a larger amount to invest and therefore can acquire a large number of securities in the index and can do so minimizing transaction costs. A good example is the common stock indexed mutual funds.
For institutional investors, even with a large amount of funds to invest, the portfolio manager still faces the In an active strategy, an investor is seeking to outperform the index or, in the case of liability-driven institutional investors, earn a higher return than a liability that it must pay.
The construction of an active portfolio begins with an analysis of the factors that have historically determined the return on the index. Once these factors are identified, then the index can be decomposed into these factors or, more specifically, a risk profile of the index can be identified based on these factors. Active management involves a deliberate decision by the portfolio manager to create a portfolio that departs from the risk profile of the index by accepting a larger or smaller exposure to one or more factors.
Departures from the risk profile of the index represents bets on these factors. For example, consider common stock. Suppose that a portfolio manager believes that he or she can select industry sectors that can outperform and underperform. Then the portfolio manager will deliberately overweight the industry sectors that are expected to outperform and underweight those that are expected to underperform. For an indexing strategy, in contrast, this approach involves creating a portfolio with a profile that matches the risk profile that is, matching the factors of the index.
This mitigates the problem mentioned earlier of having to download all the securities in the index. This process begins with calculating the return realized over the investment period. The realized return is then compared to the return on the benchmark.
The benchmark can be a market index or a minimum return established by a liability. The comparison will allow the investor to determine whether the portfolio outperformed, matched, or underperformed the benchmark.
However, the process does not stop there. It is common to compare the performance relative to the risk accepted—a reward-to-risk ratio. The most common measure used is the Sharpe ratio.
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The numerator of the Sharpe ratio is the return over the risk-free rate. The Sharpe ratio is thus: For institutional investors, more elaborate techniques to assess performance are employed. The most common is the use of multifactor asset pricing models. While these models can be used to construct a portfolio, they can also be used to identify the reasons for underperformance or outperformance. These models do so by allowing the investor to determine the factor exposures that resulted in better or worse performance than the benchmark index.
Policy guidelines are established in order to satisfy the investment objectives and begin with the asset allocation decision. The policy guidelines must take into consideration client-imposed constraints, regulatory constraints if applicable , and accounting and tax factors.
After establishing the investment objectives and guidelines, the next step is to formulate a portfolio strategy. In doing so, a decision must be made as to whether an active or passive portfolio strategy is to be pursued. Given the portfolio strategy, the specific securities to be held in the portfolio must then be selected. After the portfolio has been assembled, performance must be periodically evaluated.
This involves comparing the performance of the portfolio to the established benchmark. Analyzing active investment strategies. Journal of Portfolio Management 32, 1: Anson, M. Strategic versus tactical asset allocation. Journal of Portfolio Management 29, 1: Ellis, C. Journal of Portfolio Management 28, 3: Farr, D. Exploring the dimensions of active management 32, 1: Jacobs, B. Enhanced active equity strategies.
Journal of Portfolio Management 32, 3: Kritzman, M. Toward defining an asset class. Journal of Alternative Investments 2, 1: Markowitz, H. Portfolio selection.Daniel Coggin and. Broadly speaking, an asset is any possession that has value in an exchange. The references provide direction for further research on the given topic. Financial Analysts Journal 27, 6: So, for example, if an investor downloads a zero-coupon instrument for 70, the interest realized at the maturity date is And, due to heavy regulation, we find there is extensive data on the banking system facilitating comprehensive research in the industry.
With bond portfolios that are actively managed, expectations may involve forecasts of future interest rates and sector spreads.