2.

2 ARTICLES

ARTICLE:1

TITLE : THE DESCRIPTION OF PORTFOLIOS

AUTHOUR:Richard Grinold

PUBLISHING YEAR :2004

ABSTRACT :Grinold provides a general framework for the description of various aspects of

a portfolio using a set of factors. The work is cousin to the well – worn topic of performance

analysis and attribution, and in that sense, is fairly represented as being old wine in new

bottles the scope is much more general, however. Grinold first provides a theoretical structure

with a model that describes various aspects of a portfolio as either the allocation of a

portfolio’s variance or as the results in terms of the risk and correlation of portfolios. The

expanded framework and portfolio focus opens up a wide range of problems that can be

studied with the same framework. Grinold uses exampled to illustrate what the methodology

can accomplish and as a guide to sense when we are asking too much from the model.
ARTICLE :2

TLITE : MINIMUM – VARIANCE PORTFOLIO COMPOSITION

AUTHOUR :Roger Clarke, Harindra de Silva and Steven Thorley

PUBLISHING YEAR :2001

ABSTRACT :Empirical studies document that equity portfolios constructed to have the

lowest possible risk have surprisingly high average returns. Roger Clarke, Harindra de Silva

and Steven Thorley derive an analytic solution for the long – only Minimum – variance

portfolio under the assumption of a single - factor covariance matrix. The equation for the

optimal security weights has a simple and intuitive form that provides several insights on

minimum – variance portfolio composition. While high idiosyncratic risk can lead to a low

security weights, high systematic risk takes the large majority of investable securities out of

long – only solutions. The relatively small set of securities that remains has market betas

below an analytically specified threshold beta.

ARTICLE: 3

TITLE : POLICY PORTFOLIOS AND REBALANCING BEHAVIOR

AUTHOR : Martin L. Leibowitz and Anthony Bova

PUBLISHING YEAR :2006

ABSTRACT:An institutional fund typically has a multi – asset allocation the policy portfolio

that is maintained over time. When allocation shifts, the fund rebalances back to the policy

portfolio. The discipline of the policy portfolio has many benefits: simplicity, convenient

benchmarking, and a minimum of organizational frictions. It’s very routine nature can lead,

however, to an overemphasis on relative returns and insensitivity to fundamental changes in

fund status and market structure. In 2004, the late Peter Bernstein questioned whether rigid

adherence to the policy portfolio made sense, given frequent market dislocations and high

levels of volatility. In this article, Leibowitz and Bova attempt to shed further light on the

Bernstein question by analyzing the risk tolerance and return assumption of a basic two –

asset fund.
ARTICLE: 4

TITLE : CAPITAL ASSET PRICING MODEL (CAPM)

AUTHOUR: Markowitz, William Sharpe, John Lintner

ABSTRACT:The basic structure of Capital Asset Pricing Model. It is a model of linear

general equilibrium return. In the CAPM theory, the required rate return of an asset is having

a linear relationship with asset‘s beta value i.e. undiversifiable or systematic risk (i.e. market

related risk) because non market risk can be eliminated by diversification and systematic risk

measured by beta. Therefore, the relationship between an assets return and its systematic risk

can be expressed by the CAPM, which is also called the Security Market Line.

Rp = RfXf+ Rm(1- Xf)

Rp = Portfolio return

Xf = The proportion of funds invested in risk free assets

1- Xf = The proportion of funds invested in risky assets

Rf = Risk free rate of return

Rm = Return on risky assets

ARTICLE:5

TITLE : IMPORTANCE OF PORTFOLIO MANAGEMENT

AUTHOUR: Pavan Kumar Manthaand SrinivasaRao M

ABSTRACT:Portfolio management has emerged as a separate academic discipline in India.

Portfolio theory that deals with the rational investment decision-making process has now

become an integral part of financial literature. Investing in securities such as shares,

debentures & bonds is profitable well as exciting. It is indeed rewarding but involves a great

deal of risk & need artistic skill. Investing in financial securities is now considered to be one

of the most risky avenues of investment. It is rare to find investors investing their entire

savings in a single security. Instead, they tend to invest in a group of securities. Such group of

securities is called as PORTFOLIO. Creation of portfolio helps to reduce risk without

sacrificing returns. Portfolio management deals with the analysis of individual securities as

well as with the theory and practice of optimally combining securities into portfolios
LITERATURE REVIEW

PORTFOLIO MANAGEMENT

1. Specification and qualification of investor objectives, constraints, and preferences in

the form of an investment policy statement.
2. Determination and qualification of capital market expectations for the economy,
market sectors, industries and individual securities.
3. Allocation of assets and determination of appropriate portfolio strategies for each
asset class and selection of individual securities.
4. Performance measurement and evaluation to ensure attainment of investor objectives.
5. Monitoring portfolio factors and responding to changes in investor objectives,
constrains and / or capital market expectations.
6. Rebalancing the portfolio when necessary by repeating the asset allocation, portfolio
strategy and security selection.

CRITERIA FOR PORTFOLIO DECISIONS

1. In portfolio management emphasis is put on identifying the collective importance of

all investor’s holdings. The emphasis shifts from individual assets selection to a more
balanced emphasis on diversification and risk-return interrelationships of individual
assets within the portfolio. Individual securities are important only to the extent they
affect the aggregate portfolio. In short, all decisions should focus on the impact which
the decision will have on the aggregate portfolio of all the assets held.

2. Portfolio strategy should be molded to the unique needs and characteristics of the
portfolio‘s owner.
3. Diversification across securities will reduce a portfolio‘s risk. If the risk and return are
lower than the desired level, leverages (borrowing) can be used to achieve the desired
level.
4. Larger portfolio returns come only with larger portfolio risk. The most important
decision to make is the amount of risk which is acceptable.
5. The risk associated with a security type depends on when the investment will be
liquidated. Risk is reduced by selecting securities with a payoff close to when the
portfolio is to be liquidated.
 6. Competition for abnormal returns is extensive, so one has to be careful in evaluating
the risk and return from securities. Imbalances do not last long and one has to act fast
to profit from exceptional opportunities.
7. Provides user interfaces that allow for the extraction of data based on user defined
parameters.
8. Provides a comprehensive set of tools to perform portfolio and risk evaluation against
parameters set within the risk framework.
9. Provides a set of tools to optimise portfolio value and risk position by:
10. Considering various legs of different contracts to create an optimal trading strategy.
11. The calculation of residual purchase requirements.
12. Performs analysis that provides the relevant information to create hedge and trade
plans.
13. Performs analysis on current and potential trades.
14. Evaluates the best mix of contracts on offer from counterparties to minimise the
overall purchase cost and maximize profits.
15. Creates and maintains trading and hedge strategies by:
16. Allocating trades to contracts and books.
17. Maintaining trades against contracts and books.
18. Reviewing trades against existing trading strategy.
19. Maintains an audit trail of decisions taken and query resolution.
20. Produces accurate and timely reports

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