Chapter 27 – The Theory of Active Portfolio Management
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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, suppose that, as
a result of a predicted decrease in interest rates, bonds are now expected to perform
2. The specific tasks for the econometrics unit might entail the following:
(2) Help the Quality Control unit to estimate forecasting records.
3. Exercise left to student; answers will vary.
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 (adjusted for risk) from
Chapter 27 – The Theory of Active Portfolio Management
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The activity envisioned in this problem amounts to an improvement in the forecasting
(1) directly from the analyst’s past forecasts; or, (2) from estimates of the distribution of