PART 1 The Investment Background
Chapter 1 The Investment Setting
What Is an Investment?
Measures of Return and Risk
Determinants of Required Rates of Return
Relationship between Risk and Return
Chapter 1 Appendix: Computation of Variance and Standard Deviation
Chapter 2 Asset Allocation and Security Selection
Individual Investor Life Cycle
The Portfolio Management Process
The Need for a Policy Statement
Input to the Policy Statement
Constructing the Policy Statement
The Importance of Asset Allocation
The Case for Global Investments
Historical Risk-Returns on Alternative Investments
Chapter 2 Appendix:
A. Covariance
B. Correlation
Chapter 3 Organization and Functioning of Securities Markets
What Is a Market?
Primary Capital Markets
Secondary Financial Markets
Classification of U.S. Secondary Equity Markets
Alternative Types of Orders Available
Chapter 4 Security Market Indexes and Index Funds
Uses of Security Market Indexes
Differentiating Factors in Constructing Market Indexes
Stock Market Indexes
Bond Market Indexes
Composite Stock–Bond Indexes
Comparison of Indexes over Time
Investing in Security Market Indexes
Chapter 4 Appendix: Stock Market Indexes
PART 2 Developments in Investment Theory
Chapter 5 Efficient Capital Markets, Behavioral Finance, and Technical Analysis
Efficient Capital Markets
Behavioral Finance
Implications of Efficient Capital Markets
Technical Analysis
Advantages of Technical Analysis
Challenges to Technical Analysis
Technical Trading Rules and Indicators
Chapter 6 An Introduction to Portfolio Management
Some Background Assumptions
The Markowitz Portfolio Theory
The Efficient Frontier
Capital Market Theory: An Overview
Chapter 6 Appendix:
A. Proof That Minimum Portfolio Variance Occurs with Equal Investment Weights When Securities Have Equal Variance
B. Derivation of Investment Weights That Will Give Zero Variance When Correlation Equals 1.00
Chapter 7 Asset Pricing Models
The Capital Asset Pricing Model
Empirical Tests of the CAPM
The Market Portfolio: Theory versus Practice
Arbitrage Pricing Theory
Multifactor Models and Risk Estimation
PART 3 Valuation and Management of Common Stocks
Chapter 8 Equity Valuation
Important Distinctions
An Introduction to Discounted Cash Flow and Relative Valuation
Discounted Cash Flow
Relative Valuation
Ratio Analysis
The Quality of Financial Statements
Moving on to Chapter 9
Chapter 8 Appendix: Derivation of Constant-Growth Dividend Discount Model (DDM)
Chapter 9 The Top-Down Approach to Market, Industry, and Company Analysis
Introduction to Market Analysis
Aggregate Market Analysis (Macroanalysis)
Microvaluation Analysis
Introduction to Industry Analysis: Why Industry Analysis Matters
Industry Analysis
Estimating Industry Rates of Return
Global Industry Analysis
Company Analysis
Connecting Industry Analysis to Company Analysis
Calculating Intrinsic Value
Lessons from Some Legends
Chapter 10 The Practice of Fundamental Investing
Initial Public Offerings
Buy-Side Analysts and Sell-Side Analysts
Capital Allocation
Corporate Governance
Creating a Stock Pitch
Chapter 10 Appendix:
A. Why Air Lease Should Soon Be Flying High
B. The Plane Truth
Chapter 11 Equity Portfolio Management Strategies
Passive versus Active Management
An Overview of Passive Equity Portfolio Management Strategies
An Overview of Active Equity Portfolio Management Strategies
Value versus Growth Investing: A Closer Look
An Overview of Style Analysis
Asset Allocation Strategies
PART 4 Valuation and Management of Bonds
Chapter 12 Bond Fundamentals and Valuation
Basic Features of a Bond
The Global Bond Market Structure
Survey of Bond Issues
Bond Yield Curves
Bond Valuation
Chapter 13 Bond Analysis and Portfolio Management Strategies
Bond Analysis Tools
An Overview of Bond Portfolio Management: Performance, Style, and Strategy
Passive Management Strategies
Active Management Strategies
Core-Plus Management Strategies
Matched-Funding Management Strategies
Contingent and Structured Management Strategies
Chapter 13 Appendix: Closed-Form Equation for Calculating Macaulay Duration
PART 5 Derivative Security Analysis
Chapter 14 An Introduction to Derivative Markets and Securities
Overview of Derivative Markets
Investing with Derivative Securities
The Relationship between Forward and Option Contracts
An Introduction to the Use of Derivatives in Portfolio Management
Chapter 15 Forward, Futures, and Swap Contracts
An Overview of Forward and Futures Trading
Hedging with Forwards and Futures
Forward and Futures Contracts: Basic Valuation Concepts
Financial Forwards and Futures: Applications and Strategies
OTC Forward Contracts
Chapter 15 Appendix: Calculating Money Market Implied Forward Rates
Chapter 16 Option Contracts
An Overview of Option Markets and Contracts
The Fundamentals of Option Valuation
Option Valuation: Extensions
Option Trading Strategies
Other Option Applications
PART 6 Analysis and Evaluation of Asset Management
Chapter 17 Professional Portfolio Management, Alternative Assets, and Industry Ethics
The Asset Management Industry: Structure and Evolution
Private Management and Advisory Firms
Organization and Management of Investment Companies
Investing in Alternative Asset Classes
Ethics and Regulation in the Professional Asset Management Industry
What Do You Want from a Professional Asset Manager?
Chapter 18 Evaluation of Portfolio Performance
The Two Questions of Performance Measurement
Simple Performance Measurement Techniques
Risk-Adjusted Portfolio Performance Measures
Application of Portfolio Performance Measures
Holdings-Based Portfolio Performance Measures
The Decomposition of Portfolio Returns
Factors That Affect Use of Performance Measures
Reporting Investment Performance
Appendix A The CFA® Charter
Appendix B Code of Ethics and Standards of Professional Conduct
Appendix C Interest Tables
Appendix D Standard Normal Probabilities
Comprehensive References List
Glossary
Index
Frank K. Reilly, University of Notre Dame
Frank K. Reilly, a Chartered Financial Analyst (CFA), is the Bernard J. Hank Professor of Finance, Mendoza College of Business, University of Notre Dame, where he served as dean from 1981-1987. Prior to 1981, Dr. Reilly was a professor at the University of Illinois at Urbana-Champaign, the University of Wyoming, and the University of Kansas. Recently, he was part of the inaugural group selected as a fellow of the Financial Management Association International. At the 2001 AIMR annual meeting in Los Angeles, he received the Daniel J. Forrestal III Leadership Award for Professional Ethics and Standards of Investment Practice. Among his other honors, Professor Reilly was included in the list of Outstanding Educators in America, received the Alumni Excellence in Graduate Teaching Award and the Outstanding Educator Award from the M.B.A. class at the University of Illinois, the Outstanding Teachers Award from the M.B.A. class at the University of Notre Dame, and the Faculty Award from the University of Notre Dame. He received his B.B.A. at the University of Notre Dame, his M.B.A. at Northwestern University, and his Ph.D. at the University of Chicago.
Keith C. Brown, University of Texas at Austin
Keith C. Brown, a Chartered Financial Analyst (CFA), is the Jack S. Josey Professor, University Distinguished Teaching Professor, and Fayez Sarofim Fellow at the McCombs School of Business at the University of Texas at Austin, where he teaches Investments, Portfolio Management and Security Analysis, Capital Markets, and Derivatives courses at the BBA and MBA levels. He is president and CEO of The MBA Investment Fund, LLC, a private capital appreciation fund managed by UT graduate students, and the former director of the department's Hicks, Muse, Tate & Furst Center for Private Equity Finance. Professor Brown is cofounder and senior partner of Fulcrum Financial Group, a portfolio management and investment advisory firm located in Austin, Texas, and Las Vegas, Nevada. He serves as an advisor to the boards of the Teacher Retirement System of Texas and the University of Texas Investment Management Company. He is an associate editor for the JOURNAL OF INVESTMENT MANAGEMENT and the JOURNAL OF BEHAVIORAL FINANCE. He received his B.A. from San Diego State University and his M.S. and Ph.D. from Purdue University.
Sanford J. Leeds, University of Texas at Austin
Sanford J. Leeds is a distinguished senior lecturer at the University of Texas' McCombs School of Business, where he has been a member of the faculty for 16 years. For 13 of those years, he also served as president of The MBA Investment Fund LLC, a privately funded investment company managed by graduate students at the University of Texas. Professor Leeds' numerous teaching awards include three schoolwide awards: the Joe D. Beasley Teaching Award, the CBA Foundation Advisory Council Award for Teaching Innovation and the Jim Nolen Award for Excellence in Graduate Teaching. His recognition from his students includes multiple Outstanding MBA Professor Awards and Outstanding MSF Professor Awards. In 2015, he was selected to be a Provost Teaching Fellow and served on the steering committee of that organization. He currently serves as a Senior Provost Fellow. He received a B.S. in Investment Analysis from the University of Alabama, an MBA from the University of Texas and a J.D. from the University of Virginia. Professor Leeds received the Chartered Financial Analyst designation in 1998. He has served the CFA Institute as a grader, a member of the Candidate Curriculum Committee and an editor of a candidate reading section. He is also a member of the Texas State Bar.
