bài giảng investment analysis and management chapter 11

Impact of the Marketthe price movement of common stocks stocks  Accounts for 90% of the variability in a diversified portfolio’s return same situation... Required Rate of Returnneeded t

Chapter 11 Charles P Jones, Investments: Analysis and Management,

Tenth Edition, John Wiley & Sons Prepared by

Common Stocks:

Analysis and

Strategy

Impact of the Market

the price movement of common stocks

stocks

 Accounts for 90% of the variability in a diversified portfolio’s return

same situation

Required Rate of Return

needed to induce investment

minimum expected return to persuade

purchase

a risk premium to compensate for the

additional risk assumed

A B

C

k M

k RF

0 0.5 1.0 1.5 2.0

SM L

Beta M

E(R)

Security Market Line

as risky as market

are more risky than the market

 Beta >1.0

risky than the market

 Beta <1.0

Understanding the Required Rate of Return

 Risk-free rate

the economy

expected inflation

Passive Stock Strategies

 Natural outcome of a belief in efficient markets

the market on a risk adjusted basis

costs and time spent in managing the portfolio

analysis less than the costs

Passive Stock Strategies

transaction costs and involve inevitable

mistakes

and adjusting to changes in risk tolerance

Passive Stock Strategies

performance of some market index

movements and act accordingly

securities

Active Stock Strategies

advantage relative to other market

participants

evidence about efficient markets

 Identification of individual stocks as

offering superior return-risk tradeoff

Active Stock Strategies

selection of stocks

 Security analyst’s job is to forecast

stock returns

 expected change in earnings per share, expected return on equity, and industry outlook

Sector Rotation

 Similar to stock selection, involves

shifting sector weights in the portfolio

relatively well and de-emphasize sectors

expected to perform poorly

stocks, capital goods stocks, and defensive stocks

Market Timing

returns by varying the percentage of

portfolio assets in equity securities

expected to rise

brokerage commissions and taxes paid

provide positive risk-adjusted returns?

Efficient Markets and

Active Strategies

successful over time after all costs

economic value

should be devoted to security analysis

maintaining chosen portfolio risk

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