The Role of Capital Market Expectations in Portfolio Management
When developing an investment strategy, one key element is to develop capital market expectations - forecasts of the long-term risk and return characteristics for various asset classes. These forecasts will be used to select asset allocations that minimize risk for a given level of return or maximize return for a given level of risk.
The capital market expectations influence asset allocation strategy and the frequency at which portfolios will need to be rebalanced. Even in a passive strategy (passive strategies do not react to changing capital market expectations) an initial forecast of long-term expectations is crucial.
For more information, see all articles on: Active Management, Asset Allocation, Fundamental Analysis, Investment Returns, Passive Management, Portfolio Management See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
[...] strategic asset allocation combines the Investment Policy Statement with capital market expectations to determine a target weight (or range) for each asset class. Often the strategic asset allocation [...]
December 30th, 2007 at 8:03 am