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
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
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 (risk adjusted) from
active management. Apply this incremental M2 to the dollar value of the portfolio
over future periods and compute the present value of these dollar increments to