Applied Asset and Risk Management: A Guide to Modern Portfolio Management and Behavior-Driven Markets

491 Pages·2015·10.741 MB·English

by  Marcus Schulmerich, Yves-Michel Leporcher, Ching-Hwa Eu (auth.)

Management for Professionals
Marcus Schulmerich
Yves-Michel Leporcher
Ching-Hwa Eu
Applied Asset
and Risk
Management
A Guide to
Modern Portfolio Management
and Behavior-Driven Markets
Management for Professionals
Moreinformationaboutthisseriesat
http://www.springer.com/series/10101
Marcus Schulmerich
Yves-Michel Leporcher
Ching-Hwa Eu
Applied Asset and Risk
Management
A Guide to Modern Portfolio
Management and Behavior-Driven
Markets
123
MarcusSchulmerich Yves-MichelLeporcher
StateStreetGlobalAdvisors(SSgA) CréditAgricole
Munich Paris
Germany France
Ching-HwaEu
DeutscheBank
London
U.K.
ISSN2192-8096 ISSN2192-810X(electronic)
ISBN978-3-642-55443-8 ISBN978-3-642-55444-5(eBook)
DOI10.1007/978-3-642-55444-5
SpringerHeidelbergNewYorkDordrechtLondon
LibraryofCongressControlNumber:2014953007
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Tomyfamily
Marcus Schulmerich
To theonlyladyIhaveeverloved
Yves-Michel Leporcher
Tomyfamilywho supportedmethroughoutmylife
Ching-Hwa Eu

Foreword
Sincethefinancialcrisis,riskandfinancepractitionershavebeenevenmorekeenly
aware of the need to combine successfully practical and theoretical knowledge.
Financeisanareawheretherearecompetingtheoriesofassetpricingandempirical
observationsthatcanundermineconfidenceinourtheoreticalbeliefs.Knowledgeis
evolving,eventhoughsomeofthemostintractablechallengesandmarketfailures
appeartorepeatthemselveswithalarmingregularity;forexample,theproblemsof
spottingbubblesandavoidingmarketpanics.
Thisbookisdesignedtomeettheneedsofstudentsandpractitionersinfinance
who wish to advance their knowledgeof asset and risk managementespecially in
equities,with a particularfocusonbringingtogethertheoryand practicalapplica-
tions. It will bring experienced practitioners up to date with recent developments
and advances in theory and puts into context behavioral finance, traditional asset
pricing,andobservationsfromfinancialmarketssuchastheflashcrash,theGreek
crisis,andothers.Itwillhelpthosewhowishtounderstandmanydifferenttypesof
stockmarketanomalies,andwhytheymightariseinanearlyefficientmarket.
The global financial crisis caused many to reexamine practices in the finance
industryandtowonderwhethertherehadbeentoostrictanadherencetotheoretical
concepts at the expense of a more pragmatic or practical viewpoint. Thankfully,
practitionersintheindustryhavenotneglectedtheory,buthaveendeavoredtobuild
onitandblenditwithpractice,andbydoingsolearnfromtheeventsof2007–2009.
Thisbookwillhelpinthatimportantjob.
GlobalChiefInvestmentOfficer RichardLacaille
StateStreetGlobalAdvisors(SSgA)
August2014
vii

Preface
In March 2014, when this book was finished and handed over to the publishers,
morethan5yearshadpassedsincethecollapseoftheU.S.investmentbankLehman
Brothers.Yet,theconsequencesofthisbankruptcy,whichwastheculminatingpoint
ofthesubprimecrisis,canstillbefelttoday.Andwhenwelookatthecurrentstatus
of the euro crisis, which itself was triggered by the subprime crisis, we find few
convincingsignsthatthefinancialissuesinEuropehavereallybeenfundamentally
solved.
ThecepDefault-Index2014,publishedin February2014bythecep(Centerfor
EuropeanPolicy,a think tank),showsthatwhile the creditworthinessof countries
like Ireland and Spain has improved, Greece is still far from having regained the
trust of the investors.1 The situation of France has remained unchanged, whereas
thecreditstandingofItalycontinuestodecline.Surprisingly,forthefirsttime,there
aretroublingsignsofadeterioratingcreditworthinessofBelgiumandFinland,two
corecountriesoftheeurozone.
Theeurocrisisandthesubprimecrisisareonlythelatestcrisesinalonglineof
historicalfinancialmeltdownsandstockmarketcrashes.However,thefrequencyof
these crashes has become higher and their impact has become more severe in the
recentpast.Therefore,whenwe dealwithassetandriskmanagementtoday,these
extrememarketsituationsshouldbeconsidered,aswehaveendeavoredtodointhis
book.
Thisbooktakesapracticallookattherationalandirrationalaspectsofinvesting.
Infinancialresearch,thesetwosidesofthecoinarerepresentedbymodernportfolio
theoryandbehavioralfinance.Thesignificanceofbothwasrecentlyhighlightedby
thedecisionoftheNobelPrizeCommitteetoawardtheNobelPrizeinEconomics
to Eugene Fama, a proponent of a rational view of finance, as well as to Robert
Shiller,whofollowstheapproachofbehavioralfinance.
Thisbookisintendedtoserveasacomprehensiveintroductiontoassetandrisk
management for bachelor and master students in this field as well as for young
professionalsintheassetmanagementindustry.Inaddition,theaccountoftheactual
1GerkenandKullas(2014,p.1).
ix