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CHAPTER 27: THE THEORY OF ACTIVE PORTFOLIO MANAGEMENT
CHAPTER 27: THE THEORY OF
ACTIVE PORTFOLIO MANAGEMENT
PROBLEM SETS
1. Views about the relative performance of bonds compared to stocks can have a
significant impact on how security analysis is conducted. For example, as a result of
a predicted decrease in interest rates, bonds are now expected to perform better than
previously expected. This performance forecast may also reflect forecasts about the
2. The specific tasks for the econometrics unit might entail the following:
a. Help the macro forecasters with their forecasts for asset allocation and in setting
up views for the BL model.
5. To assign a dollar value to an improvement in performance, we would start with the
expected value of M2. This is the expected incremental return (risk adjusted) from
The activity envisioned in this problem amounts to an improvement in the
forecasting accuracy of an analyst who examines a set number of securities. This
limits the improvement of the overall IR to that of those securities. (Recall that the
27-1
CHAPTER 27: THE THEORY OF ACTIVE PORTFOLIO MANAGEMENT
27-2
