文档介绍：Chapter 12: Portfolio Selection and Diversification
Objective
To understand the theory of personal
portfolio selection in theory
and in practice
Chapter 12 Contents
The process of personal portfolio selection
The trade-off between expected return and risk
Efficient diversification with many risky assets
The Concept of ‘Portfolio’
A person’s wealth portfolio includes
Assets: stocks, bonds, shares in unincorporated business, houses or apartments, pensions benefits, insurance policies, etc.
Liabilities: student loans, auto loans, home mortgages, etc.
Portfolio Selection
A study of how people should invest their wealth optimally
A process of trading off risk and expected return to find the best portfolio of assets and liabilities
Narrow and broad definitions
Portfolio Selection
Although there are some general rules for portfolio selection that apply to virtually everyone, there is no single portfolio or portfolio strategy that is best for everyone
The Life Cycle
In portfolio selection, the best strategy depends on an individual’s personal circumstances (family status, occupation, e, wealth)
Illustrations
Investing in stock market: Chang (30, a security analyst) / Obi (30, an English teacher)
Buying insurance policies: Miriam (a parent with dependent children) / Sanjiv (a single person with no dependents)
Time Horizon
In formulating a plan for portfolio selection, you begin by determining your goals and time horizons
Planning horizon: the total length of time for which one plans
Decision horizon: the length of time between decisions to revise the portfolio
Trading horizon: the minimum time interval over which investors can revise their portfolios / its determination and impacts
Risk Tolerance
A major determinant of portfolio choices
It is influenced by such characteristics as
age, family status, job status, wealth, and
other attributes that affect a person’s ability to maintain his standard of living in the face of adverse movements in the market valu