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Attributes and their Characteristic Portfolios

  • Hans-Peter Deutsch
Chapter
Part of the Finance and Capital Markets Series book series (FCMS)

Abstract

The financial instruments, or in general the assets, of a portfolio have many characteristics or attributes such as expected return, market capitalization, beta with respect to an index, membership in a certain economic sector, etc. If we denote a certain attribute by a i for asset i (having value V i ) then the exposure of a portfolio V (with weights w k for k = 1,..., M) to this particular attribute is defined as

$$\matrix{ {{a_V} \equiv \sum\limits_{k\, = \,1}^M {{w_k}{a_k}} \, = \,{{\bf{w}}^T}{\bf{a}}} \cr}$$

where we have used the obvious notation a T =(a1,…,a M )- If, for instance the characteristics a i are measures of how strongly the assets i = 1,…, M belong to the automotive industry then a V is the exposure of the portfolio to the automotive industry. Another example: If the characteristics a i are the asset returns R i then the exposure a V is simply the portfolio return R V . From these examples one can already guess that characteristics (or attributes) are a very general and rather abstract concept with broad applications.1

Keywords

Internal Model Optimal Portfolio Risky Asset Excess Return Sharpe Ratio 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Hans-Peter Deutsch 2009

Authors and Affiliations

  • Hans-Peter Deutsch
    • 1
  1. 1.FrankfurtGermany

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