9 Portfolio Management

2022年CFA一级科目Portfolio management, 新增考试内容behavioral finance

Portfolio Management

• Portfolio management overview
  • A portfolio approach to investing
    • Avoiding Disaster
    • Reduce Risk more than increase returns
    • Composition Matters for the Risk–Return Trade- off
  • Steps in the portfolio management process
    • The Planning Step 计划
      • Understanding the client's needs
      • Preparation of an investment policy statement (IPS)
    • The Execution Step 执行
      • Asset allocation
      • Security analysis
      • Portfolio construction
    • The Feedback Step 反馈
      • Portfolio monitoring and rebalancing
      • Performance measurement and reporting
  • Types of investors
    • Individual investors
    • Institutional investors
      • Perpetual
        • University endowment
        • Foundation
  • The asset management industry
    • Active versus Passive Management
    • Traditional versus Alternative Asset Managers
    • Ownership Structure
    • Asset Management Industry Trends
      • Growth of Passive Investing
      • Use of "Big Data" in the Investment Process
      • Robo- Advisers: An Expanding Wealth Management Channel
  • Pooled investments
    • Mutual funds
      • Open-end funds: Investors can buy and redeem the mutual fund shares at net asset value
        • Trading prices are close to the net asset value of the fund;
        • Not fully invested as some cash kept for redemption;
        • Fee charged: management fees, upfront fees, redemptionfees
        • 不在二级市场交易
      • Closed-end funds: No new investments are accepted
        • Number of shares issued does not change
        • Investors can only liquidate the shares by selling them to other investors，可能于二级市场交易
        • Traded at a premium or discount to net asset value;
        • Could be fully invested
    • ETF&mutual fund
    • Private equity
      • Buyout funds
      • Venture capital funds
    • Hedge funds
    • Separately Managed Accounts
• Portfolio Risk and Return
  • Part Ⅰ
    • Investment characteristics of assets
      • Return
        • Holding period return
        • Arithmetic (mean) return
        • Geometric mean return
        • Money-weighted return (similar to IRR): 在现金流变化较大时可以使用
      • Other major return measures and their applications
        • Gross and Net Return: fees
        • Pre- tax and After- tax Nominal Return
        • Real Returns: inflation
        • Leveraged Return
      • Risk
        • Variance
        • Sample variance
        • Standard deviation
        • Portfolio of Two Risky Assets
    • Risk aversion and portfolio selection
      • The concpet of risk aversion
        • Risk Seeking: actually prefers more risk to less and, givenequalexpected returns, will choose the more risky investment
        • Risk Neutral: means that the investor cares only about return and not about risk
        • Risk Averse : simply one that dislikes risk
      • Utility theory and indifference curves
        • Utility
          • Definition: s a measure of relative satisfaction from consumption of various goods and services or in the case of investments, the satisfaction that an investor derives from a portfolio
          • 计算
            • 公式
            • 各部分含义
              • U is the utility of an investment
              • E(r) is the expected return
              • σ2 is the variance of the investment
              • A is a measure of risk aversion
                • A>0, when investor is risk-averse
                • A=0, when investor is risk-neutral
                • A<0, when investor is risk-seeking
        • Indifference Curves
          • Introduction
            • An indifference curve plots the combinations of risk–return pairs that an investor would accept to maintain a given level of utility
          • Different types
            • The curves slope upwardly and getting steeper. Higher utility corresponding to a more left or upward indifference curve
            • The most risk- averse investor has an indifference curve with the greatest slope. The more risk-averse the investor, the steeper the curve
    • Portfolio risk
      • Portfolio of two risky assets
        • Portfolio Return: as a weighted average of the returns in the portfolio
        • Portfolio risk
          • Covariance
          • Correlation
          • Portfolio variance and standard deviation
            • 特殊情况
              • ρ12 = +1: Returns of the two assets are perfectly positively correlated
              • ρ12 = –1: Returns of the two assets are perfectly negatively correlated
              • ρ12 = 0: Returns of the two assets are uncorrelated
              • Achieved diversification by combining two assets that are not perfectly correlated
            • 图形
      • Portfolio of many risky assets
        • Portfolio Return: = w1R1 + w2R2 + … + wnRn
        • Portfolio Risk
    • Efficient frontier and investor's optimal portfolio
      • Efficient frontier of risky assets
        • The Markowitz assumptions
          • Risk aversion
          • Investment return can be measured by expected returns
          • Risk is measured in terms of variance（standard deviation)
          • Decision making is based on expected return and the risk
          • Utility maximization
        • Efficient frontier of risky assets
          • Efficient frontier
            • Portfolios above efficient frontier is not achievable
            • Portfolios below efficient frontier is un-efficient
          • 图形
          • Terms
            • Minimum-variance frontier of risky assets: Portfolio that have the lowest risk of all portfolios given a certain level of return
            • Global minimum-variance portfolio: The investment portfolio that has the lowest variance
            • Efficient frontier of risky assets ( well-diversified )
              • Effective portfolio provides the lowest risk at a certain level of return and offers the highest return given certain level of risk
              • All risky assets are contained
      • Capital allocation line (CAL)
        • 定义: The portfolios available to an investor through combining the risk-free asset with one risky asset (well-diversified portfolio).
        • 图形
          • CAL(P) is the optimal capital allocation line, which is tangent to efficient frontier of riskyassets. Portfolio P is the optimal risky portfolio
        • 曲线方程
      • Optimal investor portfolio
        • Investor should choose portfolio "C" to invest as it supplies the most satisfaction
        • Optimal Portfolio Along CAL
          • More risk-averse investor (A1= 4 )will select portfolio "j" (less in risky asset), and less risk-averse investor(A2 =2 )will select portfolio "k" (more in risky asset)
        • Optimal risky portfolio & Optimal investor portfolio
        • Investors' expectations
          • Different investors have different expectations
            • The expected returns
            • Standard deviations
            • Correlations
          • The optimal risky portfolio is also different because of investors' expectations
      • The two fund separation theorem
        • Hold a combination of two portfolios or funds: a risk- free asset and an optimal portfolio of risky assets
        • Two distinct steps
          • Investment decision: the investor identifies the optimal risky portfolio
          • Financing decision
            • Lending portfolio
            • Borrowing portfolio
  • Part Ⅱ
    • The capital market theory
      • Capital market line (CML)
        • Assuming all investors have a homogeneous expectation: all investors have identical efficient frontier of risky portfolio and identical optimal risky portfolio, which is the market portfolio
        • CML is a special CAL that includes all possible combinations of risk-free asset and market portfolio
        • CML is tangent to the efficient frontier at a point representing market portfolio
      • Market portfolio
    • Systematic and nonsystematic risk
      • Systematic risk
        • 定义: Risk affects the entire market or economy, which cannot bea voided and is inherent in the overall market
        • Caused by macro factors: interest rates, GDP growth, supply shocks
        • Measured by Beta (β) of the asset
      • Nonsystematic risk
        • Risk can be reduced or eliminated by holding well-diversified portfolios
        • Because diversification is cost-free, investors are only rewarded for taking systematic risks
        • Types: Financial risk, business risk, credit risk
    • Calculation and interpretation of β
      • Beta (β)
        • 定义: A measure of systematic risk of an asset, representing how sensitive an asset's return is to the market as a whole
        • 计算
      • Model
        • Single-factor model (Market Model)
        • Multi-factor Model
          • βi,k: the sensitivity of excess return on risk factor k Fk: factor k
    • The capital asset pricing model (CAPM)
      • Assumptions
        • Investors are risk averse, utility-maximizing, rational individuals
        • Markets are frictionless, including no cost and no taxes
        • Investor plan for the same single holding period
        • Investor have homogeneous expectations or beliefs
        • All investments are infinitely divisible
        • Investors are price takers
      • CAPM
        • 公式
        • Description
          • The expected return (required return) only measured by beta (Systematic risk)
          • Expected return (required return) obtained from the CAPM isused for assets valuation by investors and capital budgeting
      • Security market line (SML)
        • 直线方程
          • Intercept is Rf, slope is the market risk premium (Rm-Rf)
        • 图形
        • 描述
          • Any asset or portfolio that are properly priced plots on SML
          • Any asset or portfolio that are overpriced plots below SML
          • Any asset or portfolio that are underpriced plots above SML
      • Comparison between CML and SML
    • Portfolio performance appraisal measures
• Basic of Portfolio Planning and Construction
  • Portfolio planning
    • The investment policy statement (IPS)
      • Understanding of the client's situation and requirements
      • A typical format of IPS will include the client's investment objectives and the constraints that apply to the client's portfolio
      • The client's objectives are specified in terms of risk tolerance and return requirements
    • Major components of an IPS
      • Introduction
      • Purpose
      • Duties and responsibilities
      • Procedures
      • Objective
        • Risk objectives
          • Quantitative
            • Absolute risk objectives
            • Relative risk objectives
            • Downside risk objectives
          • Risk tolerance
            • 关系
              • Ability to bear risk: depends on investment horizon, insurance, income, wealth, financial responsibilities
              • Willingness to bear risk: depends on attitudes and beliefs about investment risk
            • 选择
              • If willingness > ability: go with ability
              • If ability > willingness: educate but do not attempt to change personality/psychological characteristics
        • Return objectives
          • Absolute return objectives
          • Relative return objectives
      • Constraints
        • Liqudity
        • Time horizon
        • Tax concerns
        • Legal and regulatory
        • Unique circumstances
      • Investment guidelines
      • Evaluation and review
      • Appendices
  • Portfolio construction
    • The strategic asset allocation (SAA)
      • Definition: the set of exposures to IPS- permissible asset classes that is expected to achieve the client's long- term objectives given the client's risk profile and investment constraints
      • Asset class
        • 定义: a category of assets that have similar characteristics, attributes, and risk/return relationships
        • 特点
          • Correlations of returns of assets within an asset class should be relatively high
          • Correlations of returns between asset classes should be low
    • Tactical asset allocation: is the decision to deliberately deviate from the policy exposures to systematic risk factors (i.e., the policy weights of asset classes) with the intent to add value based on forecasts of the near- term returns of those asset classes
    • Security selection: is an attempt to generate higher returns than the asset class benchmark by selecting securities with a higher expected return
• The Behavioral Biases of Individuals
  • Definition of behavior financial
    • Traditional finance
      • Individuals are assumed to be risk-averse, self interested, utility-maximizers who process available information in an unbiased way (rational)
      • Hypothesizes that, at the market level, prices incorporate and reflect all available and relevant information
    • Behavioral finance: includes behavioral economics, investor psychology, behavioral science, experimental economics, and cognitive psychology
  • Cognitive errors and emotional bias
    • Cognitive error
      • Definition: Individual try to process information into rational decisions, but they simply lack the capacity or sufficient information to do so; more easily to be corrected
      • Types
        • Belief perseverance biases
          • 定义: reflect an inclination to maintain beliefs. The belief is maintained by committing statistical, information-processing, or memory errors
          • Types
            • Conservatism bias
              • Definition: people maintain their prior views or forecasts by inadequately incorporating new information (强调不能很好接受新信息）
              • Consequence
                • Maintain or be slow to update a view or a forecast, even when presented with new information
                • Opt to maintain a prior belief rather than deal with the mental stress of updating beliefs given complex data
              • 应对: properly analyzing and weighting new information
            • Confirmation bias
              • Definition: Individuals tend to notice only information that agrees with their perceptions or beliefs
              • Consequence
                • Consider only the positive information
                • Develop screening criteria and then ignore informationthat opposites
                • Under-diversify portfolio
              • 应对: actively seeking out information that challenges your beliefs
            • Representativeness bias
              • Definition: people tend to classify new information based on past experiences and classifications
              • Consequence
                • Adopt a view or a forecast based almost exclusively on new information or a small sample
                • Update beliefs using simple classifications rather than deal with the mental stress of updating beliefs given complex data
              • 应对: asking FMPs if they are failing to consider the base rate or neglecting the lawof small numbers
            • Illusion of control
              • Definition: people tend to believe that they can control or influence outcomes when, in fact, they cannot
              • Consequence
                • Believe that they have "control" over the outcomes of their investments, which leads to excessive trading
                • Inadequately diversify portfolios
              • 应对: keeping the record
            • Hindsight bias
              • Definition: A bias with selective perception and retention aspects. People may see past events as having been predictable and reasonable to expect
              • Consequence
                • Overestimate the degree to which they predicted an investment outcome
                • Cause FMPs to unfairly assess money manager or security performance
              • 应对: keeping the record and examine their investment decisions
        • Information-processing biases
          • Result in information being processed and used illogically or irrationally
          • Types
            • Anchoring and adjustment,
              • Definition: people generally begin by envisioning someinitial default number and "anchor" which they then adjust up or down to reflect subsequent information and analysis
              • Consequence: may stick too closely to their original estimates when new information is learned
              • 案例: 衣服还价时，店铺老板往往会给一个远高于成本价的出价，这样顾客还价就不会离这个初始价格太远，保证商家有利可图
              • 应对: remembering that the past prices, market level and reputation provide little information about an investment`s future potential and thus should not influence buy-and-sell decisions
            • Mental accounting bias
              • Definition: people treat one sum of money differently from another equal-sized sum based on which mental account the money is assigned to
              • Consequence
                • Do not care about optimal diversification
                • Neglect opportunities to reduce risk by combining assets with low correlations
                • Irrationally distinguish between returns derived from income and those derived from capital appreciation
              • 应对: focus on total return and risk
            • Framing bias
              • Definition: a person answers a question differently based on the way in which it is asked (framed)
              • Consequence
                • Misidentify risk tolerances because of how questions about risk tolerance were framed
                • May become more risk-averse when presented with a gain frame of reference and more risk-seeking when presented with a loss frame of reference
                • Choose suboptimal investments, based on how information about the specific investments isframed
                • Focus on short-term price fluctuations, which may result in excessive trading
              • 案例: 一场流行性疾病可能会夺去6万人的生命。现在有两种方案——方案A和方案B。问：如果采取方案A将很可能拯救2万人的生命，而采取方案B，有三分之一的概率6万人都会得救但是有三分之二的概率一个人都活不了，大多数人可能会选择A
              • 应对
                • Being neural and open-minded as possible when interpreting investment-related situations
                • Focus on net income and losses
            • Availability bias
              • Definition: is an information-­processing bias in which people estimate the probability of an outcome or the importance of a phenomenon based on how easily information is recalled
              • Sources
                • Retrievability
                • Categorization
                • Narrow range of experience
                • Resonance
              • Consequences
                • Limit their investment opportunity set
                • Choose an investment, investment adviser, or mutual fund based on advertising or the quantity of news coverage
                • Fail to diversify
              • 应对
                • Develop an appropriate investment policy strategy
                • Carefully research and analyze investment decisions before making them
                • Focus on long-­term historical data
    • Emotional biases
      • Definition: are harder to correct for than cognitive errors because they originate from impulse or intuition rather than conscious calculations
      • Types
        • Loss aversion bias
          • Definition: people tend to strongly prefer avoiding losses as opposed to achieving gains
          • Consequences
            • Hold investments in a loss position longer
            • Sell investments in a gain position earlier
            • Limit the upside potential of a portfolio by selling winners and holding losers
            • Trade excessively as a result of selling winners
            • Excessive trading has been shown to lower investment returns
          • 应对: disciplined approach to investment based on fundamental analysis
        • Overconfidence bias
          • Definition: people demonstrate unwarranted faith in their own intuitive reasoning, judgments, and/or cognitive abilities
          • Consequences
            • Self-attribution bias, the combination of self-enhancing bias and self-protecting bias, contributes to overconfidence
            • Overestimating knowledge levels, abilities, and access to information
            • Underestimate risks and overestimate expected returns
            • Hold poorly diversified portfolios and trade excessively
          • 应对: objective when making investment decisions
        • Self-control bias
          • Definition: people fail to act in pursuit of their long-term, overarching goals because of alackof self-discipline. There is an inherent conflict between short-term satisfaction and achievement of some long- term goals
          • Consequences
            • Save insufficiently for the future
            • Accept too much risk in their portfolios
            • Cause asset allocation imbalance problems prefer income-producing assets in order to have income to spend
          • 应对: writing down the plan, so that they can be reviewed regularly
        • Status quo bias
          • Definition: an emotional bias in which people donothing(i.e.,maintain the "status quo") instead of making a change
          • Consequences
            • Unknowingly maintain portfolios with risk characteristics that are inappropriate for their circumstances
            • Fail to explore other opportunities
          • 案例: 投资者A就职于某一线城市设计总院，了解大量规划信息，同时单位也未要求严格保密，但A一直比较闲散，上班以摸鱼为第一要务，疏于整理归集信息，错过很多投资机会
        • Endowment bias
          • Definition: people value an asset more when they hold rights to it than when they do not
          • Consequences
            • Fail to sell off certain assets and replace them with other assets
            • Maintain an inappropriate asset allocation
            • Continue to hold classes of assets with
          • 应对
            • 鼓励卖出继承的证券等资产，因为上一代的投资风格不一定适合自己
            • 对继承的现金资产做多元化配置
        • Regret-aversion bias
          • Definition: people tend to avoid making decisions that will result in action out of fear that the decision will turn out poorly
          • Consequences
            • Be too conservative in their investment choices as a result of poor outcomes on risky investments in the past.
            • Engage in herding behavior
          • 案例: A因为买入一只股票后，市场遭遇经济危机，因为害怕股票卖出亏损后又涨回来，收到家人的责难，所以选择不做任何反应
          • 应对
            • 识别量化出自己分散化操作的好处
            • 认识到损失对所有人都是在所难免的，波动性是市场的本质
        • 应对: by education, but it is hard to correct
  • How behavorial finance influences market behavior
    • Defining market anomalies
    • Momentum
    • Bubbles and crashes
    • Value (halo effect)
• Introduction to Risk Management
  • The risk management process
    • Terms
      • Risk: is exposure to uncertainty
      • Risk exposure: the extent to which the underlying environmental or market risks result in actual risk borne by a business or investor who has assets or liabilities that are sensitive to those risks
      • Risk management: the process by which an organization or individual defines the level of risk to be taken, measures the level of risk being taken, and adjusts the latter toward the former, with the goal of maximizing the company's or portfolio's value or the individual's overall satisfaction, or utility
    • Process
      • Risk governance
      • Risk identification and measurement
      • Risk infrastructure
      • Defined policies and processes
      • Risk monitoring, mitigation, and management
      • Communications
      • Strategic analysis or integration
  • Risk governance
    • An Enterprise View of Risk Governance: Provides an enterprise-view of risk management
    • Risk Tolerance
      • Serve as the high-level guidance for management in its strategic selection of risks
      • Focus on what is and is not acceptable
    • Risk Budgeting
      • The risk budget is a further extension of risk tolerance
      • Allocates permitted risk to strategic allocation, tactical allocation, and security selection
      • Focus on where and how risk is taken
  • Identification of risks
    • Financial risks
      • Market risk: Risks that arise from movements in interest rates, stock prices, exchange rates, and commodity prices
      • Credit risk: Risk of loss if one party fails to pay an amount owed on an obligation (e.g.,bond, loan, derivative) to another party
      • Liquidity risk: Risk of a significant downward valuation adjustment when selling a financial asset., which is measured by bid-ask spread
    • Non-financial risks
      • Settlement risk: Closely related to default risk but deals more with the settling of payments that occur just before a default
      • Legal risk: The risk of being sued over a transaction. (fraud)
      • Model risk: The risk of a valuation error from improperly using a model
      • Tail risk: More events in the tail of the distribution than would be expected by probability models
      • Operational risk: Risk that arises from the people and processes that combine to produce the output of an organization
      • Solvency risk: Risk that the entity does not survive or succeed because it runs out of cash, even though it might otherwise be solvent
      • Compliance risk: It is directly related to the third party supervision department
    • Interactions between risks: Risks do not usually arise independently, but generally interact withone another, a problem that is even more critical in stressed market conditions
  • Measurement of market risk
    • Probability
    • Standard deviation
    • Beta
    • Sensitivity (Delta, Gamma, Vega, Rho, Duration)
    • Value at Risk (VaR) and Conditional VaR (CVaR)
    • Extreme value theory
    • Scenario analysis and stress testing
• Technical Analysis
  • Definition and Scope
    • Definition: Technical analysis is a form of security analysis that uses price andv olume data, which is often graphically displayed, in decision making
    • Principles and Assumptions
      • Principles
        • Prices are determined by the interaction of supply and demand
        • Technicians believe that humans are often irrational and emotional and that they tend to behave similarly in similar circumstances
        • Only those market participants who actually buy or sell asecurityhave an impact on price
      • Assumptions
        • Market prices reflect both rational and irrational investor behavior
        • Investor behavior is reflected in trends and patterns that trend to repeat and can be identified and used for forecasting prices
        • Efficient markets hypothesis dose not hold
    • Technical and Fundamental Analysis
      • Comparison
        • Fundamental analysis of a firm attempts to determine the intrinsic value of an asset by using the financial statements and other information
        • Technical analysis uses only the firm's share price and trading volume data, and it is not concerned with identifying buyers' and sellers' reasons for trading, but only with the trades that have occurred
        • Fundamentalists believe that prices react quickly to changing stock values, while technicians believe that the reaction is slow
      • Advantages of technical analysis
        • Actual price and volume data are observable
        • Technical analysis itself is objective (although require subjective judgment), while much of the data used in fundamental analysis is subject to assumptions or restatements
        • It can be applied to the prices of assets that do not produce future cash flows, such as commodities
        • It can also be useful when financial statement fraud occurs
      • Disadvantage: The usefulness is limited in markets where price and volume data might not truly reflect supply and demand, such as inilliquid markets and in markets that are subject to outside manipulation
  • Technical Analysis Tools
    • Charts
      • Two axes
        • Horizontal axis: usually time interval (daily, weekly, monthly)
        • Vertical axis: Price
      • Types of charts
        • Line charts: the simplest technical analysis charts, which show closing prices for each periods as a continuous line
        • Bar charts: add the high and low prices for each trading period and often include the opening price and closing price as well
        • Candlestick charts
          • 特点: use the same data as bar charts but display a box bounded by the opening and closing prices
          • Types
            • Box is clear: closing price>opening price;
            • Box is filled: closing price<opening price
        • Point and figure charts
          • Application: helpful in identifying changes in the direction of price movements
          • Description
            • Starting form opening price;
            • X: increase of one box size, O: indicate a decrease
            • Analyst will begin the next column when the price changes in the opposite direction by at least the reversal size (3 times the box size)
    • Relative strength analysis
      • Positive relative strength: an increasing trend indicates that the asset is outperforming the benchmark
      • Negative relative strength: an decreasing trend indicates that the asset is underperforming the benchmark
    • Trend (the most basic concept in technical analysis)
      • Types
        • Uptrend: prices are consistently reaching higher highs and retracting to higher lows (Demand>Supply)
        • Downtrend: prices are consistently reaching higher lows and retracting to lower highs (Demand<Supply)
      • Trend line: can help to identify whether a trend is continuing or reversing
        • Uptrend line: connects the increasing lows in prices
        • Downtrend line: connects the decreasing highs in prices
      • When prices crosses the trend line by what the analyst considers a significant amount, a breakout form a downtrend or a breakdown form an uptrend is said to occur
      • Terms
        • Support level: buying is expected to emerge that prevents further price decreases
        • Resistance level: selling is expected to emerge that prevents further price increases
        • Change in polarity: breached resistance levels become support levels and that breached support levels become resistance levels
    • Chart Patterns
      • Reversal patterns
        • For uptrend: Head-and shoulders pattern, double top and triple top
          • Head-and-shoulders pattern is used to project a price target for ensuing downtrend
          • The size of the head-and-shoulders pattern: the difference in price between the head and the neckline
        • For downtrend: inverse head-and shoulders pattern, double bottom, and triple bottom
      • Continuation patterns
        • Triangles: form when prices reach lower highs and higher lows over a period of time
        • Rectangles: form when trading temporarily forms a range between a support level and a resistance level
        • Flags and pennants: refer to rectangles and triangles that appear on short term price charts
      • Price target
        • Price target = Neckline – (Head – Neckline)
        • Inverse head and shoulders pattern: price target = neckline+(neckline – head)
  • Technical indicators
    • Price-based
      • Moving average lines
        • Definition: the average of the closing price of a security over a specified number of periods
        • Application
          • Technicians commonly use a simple moving average, which weights each priceequallyin the calculation of the average price
          • Some technicians prefer to use an exponential moving average (also called an exponentially smoothed moving average), which gives the greatest weight to recent prices while giving exponentially less weight to older prices
        • Trading strategy
          • First, whether price is above or below its moving average is important. A security that has been trending down in price will trade below its moving average, and a security that has been trending up will trade above its moving average
          • Second, the distance between the moving-average line and price is also significant. Once price begins to move back up toward its moving-average line, this line can serve as a resistance level
          • When a short-term moving average crosses from underneath a longer-term average, this movement is considered bullish and is termed a golden cross
          • When a short-term moving average crosses from above a longer-term average, this movement is considered bearish and is termed a dead cross
      • Bollinger bands
        • Moving average: +/-2σ
        • Trading strategies
          • Investor sells when a security price reaches the upper band and buys when it reaches the lower band. (This strategy assumes that the security price will stay within the bands）
          • The long-term investors might actually buy on a significant breakout above the upper boundary band and sell on a significant breakout below the lower band
    • Momentum oscillators
      • Rate of change oscillator
      • Relative Strength Index (RSI)
        • 公式
        • 评价
          • An RSI is based on the ratio of total price increases to total price decreases over a selected number of periods, which is scaled to oscillated between 0 and 100
          • High values (typically those greater than 70) indicating an overbought market
          • Low values (typically those less than 30) indicating an oversold market
      • Stochastic oscillator
        • 公式
        • Description
          • The absolute level of the two lines should be considered inlight of their normal range
          • Movements above this range indicate to a technician an overbought security and are considered bearish; movements below: oversold security and are considered bullish
        • Crossovers of the two lines
          • When the %K moves from below the %D line to above it, this move is considered a bullish short-term trading signal
          • When the %K moves from above the %D line to above it, this move is considered a bearish short-term trading signal
      • Moving average convergence/divergence (MACD)
        • Definition: The MACD is the difference between a short-term and a long-term moving average of the security's price
        • Constructed by
          • MACD line: difference between two exponentially smoothed moving averages, generally 12 and 26 days
          • Signal line: exponentially smoothed average of MACD line, generally 9 days
    • Sentiment
      • Put/call ratio: put option volume divided by call option volume
        • Extremely high ratios indicate strongly bearish investor sentiment and possibly an oversold market
        • Extremely low ratios indicate strongly bullish sentiment and perhaps an overbought market
      • Volatility Index:
        • Measures the volatility of options on the S&P 500 stock index
        • High level sof the VIX suggest investors fear declines in the stock market
      • Margin debt
        • When stock margin debt is increasing, investors are aggressively buying and stock prices will move higher because of increased demand
        • Falling prices may trigger margin calls and forced selling, thereby driving prices even lower
      • Short interest ratio
        • Short interest ratio = Short interest / Average daily trading volume
        • A high short interest ratio means investors expect the stock price to decrease, it also implies future buying when short sellers must return their borrowed shares
    • Flow of funds
      • Short-term trading index (TRIN)
        • 公式
        • Description
          • Index value close to 1 suggests funds are flowing about evenly to advancing and declining stocks
          • Index values greater than 1 mean the majority of volume is in declining stocks
          • Index less than 1 means more of the volume is in advancing stocks
      • Margin debt
      • Mutual fund cash position: Technical analysts typically view mutual fund cash as a contrarian indicator. When mutual funds accumulate cash, this representsfuture buying power in the market. A high mutual fund cash ratio therefore suggests market prices are likely to increase
      • New equity issuance: Issuers tend to sell new shares when stock prices are thought to be high, increases in issuance of new shares may often coincide with market peaks
• Fintech in Investment Management
  • Introduction
    • Definition: The term fintech refers to developments in technology that canbeapplied to the financial services industry
    • Some primary areas fintech is developing
      • Increasing functionality to handle large sets of data that may come from many sources and exist in a variety of forms
      • Tools and techniques such as artificial intelligence for analyzingvery large data sets
      • Automation of financial functions such as executingtradesandproviding investment advice
      • Emerging technologies for financial recordkeeping that mayreduce the need for intermediaries
  • Types of technology
    • Big data
      • Definition: a widely used expression that refers to all the potentially useful information that is generated in the economy
      • Characteristics
        • Volume
        • Velocity
        • Variety
      • Sources
        • Financial markets
        • Businesses
        • Governments
        • Individuals
        • Sensors
        • Internet of Things
      • Big Data Challenges: the quality, volume, and appropriateness of the data
    • Artificial Intelligence and Machine Learning
      • Artificial Intelligence
      • Machine Learning
        • 特点
          • Involves computer- based techniques that seek to extract knowledge from large amounts of data without making any assumptions on the data's underlying probability distribution
          • The emphasis is on the ability of the algorithm to generate structure or predictions without any help from a human
          • "find the pattern, apply the pattern"
        • Types
          • Supervised learning
          • Unsupervised learning
          • Deep learning
  • Selected Applications of Fintech to Investment Management
    • Text Analytics and Natural Language Processing
    • Robo- Advisory Services
    • Risk Analysis
    • Algorithmic Trading
  • Distributed Ledger Technology (DLT)
    • Definition: A distributed ledger is a type of database that may be shared among entities in a network
    • Blockchain: is a type of digital ledger in which information, such as changes in ownership, is recorded sequentially within blocks that are the nlinked or "chained" together and secured using cryptographic methods
    • Applications of DLT to Investment Management
      • Cryptocurrencies
      • Tokenization
      • Post- trade clearing and settlement
      • Compliance