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Applied Investment Theory How Markets and Investors Behave, and Why

:	Les Coleman
:	Applied Investment Theory How Markets and Investors Behave, and Why
:	Palgrave Macmillan
:	9783319439761
:	1
:	CHF 44.70
:

:	Einzelne Wirtschaftszweige, Branchen
:	English

:	260
:	Wasserzeichen/DRM
:	PC/MAC/eReader/Tablet
:	PDF

Institutions now dominate trading in equities around the world. Mutual funds are the most prominent, and doubly important as custodians of retirement savings. Despite this, there is no comprehensive description of fund manager behaviour, much less a matching theory. This is troubling because one of the most economically significant puzzles in finance is why experienced, well-resourced fund managers cannot outperform the market.

Applied Investment Theory: How Equity Markets Behave, and Why brings together academic research, empirical evidence and real market experience to provide new insights into equity markets and their behaviours. The book draws upon the author's rich industry experience and academic research, plus over 40 interviews with fund managers on three continents and across different markets. The result is an innovative model that explains the puzzle of poor performance by mutual funds in terms of structural features of markets, the managed investment industry, and the conduct of fund managers.

This book provides a fully integrated depiction of what markets and investors do, and why - insights that will resonate with the needs of investors, wealth managers and industry regulators. It is fully documented, but free of jargon and arcane math, and provides a grounded theory that is relevant to anyone who wants to pierce the opacity of mutual fund operations. Applied Investment Theory sets out a new paradigm in investment that is at the forefront of what should be an industrial-scale development of new finance theory following two decades of almost back-to-back financial crises.

Les Coleman is a Senior Lecturer in Finance at the University of Melbourne, Australia. His main research interest is financial decision making by firms and investment funds, and his finance publications include three research monographs, four book chapters and nearly 30 journal articles. Les trained originally as an engineer, and spent almost 30 years in senior management positions with Anglo American and ExxonMobil Corporations in Australia and overseas.

	Dedication	5
	Preface	6
	Contents	17
	About the Author	19
	List of Figures	21
	List of Tables	22
	1: Introduction	23
	1.1 Developments in Financial Markets over Recent Decades	24
	1.1.1 Transformation of the Equity Investor Base	25
	1.1.2 Inflation in Scale and Scope of Markets	26
	1.1.3 Importance of Non-economic Factors in Investment Decisions	29
	1.1.4 Systemic Weaknesses in Financial Systems Reliability	30
	1.1.5 Difficulty of Transitioning MPT to Investment Practice	32
	1.2 Motivation and Plan of This Book	32
	Part I: Investment Theory and Practice	34
	2: Current Paradigm: Neoclassical Investment Theory	35
	2.1 The Building Blocks of Investment	37
	2.2 Utility Theory and Investor Risk Propensity	40
	2.3 Capital Asset Pricing Model	40
	2.4 Factor Models and Arbitrage Pricing Theory	42
	2.5 Other Valuation Models	44
	2.6 Conclusion: Useable Hypotheses of Neoclassical Investment Theory	48
	3: Behavioural Biases in Investor Decisions	49
	3.1 The Catalogue of Cognitive Investment Biases	51
	3.1.1 Affect Heuristic	57
	3.1.2 Anchoring and Adjustment	57
	3.1.3 Asset-Liability Management	58
	3.1.4 Bounding	58
	3.1.5 Disposition Effect	60
	3.1.6 Framing	60
	3.1.7 Herding	61
	3.1.8 Hindsight Bias	62
	3.1.9 Homogenizing of Probabilities	62
	3.1.10 Hyperbolic Discounting	63
	3.1.11 Mental Accounting	64
	3.1.12 Overconfidence	64
	3.1.13 Prospect Theory and Situational Attitudes Toward Uncertainty and Loss	65
	3.1.14 Regret Aversion	66
	3.1.15 Sentiment	67
	3.2 Could There Be a Common Behavioural Denominator?	67
	3.3 Conclusion	69
	4: Uncertainty in Investor Wealth	73
	4.1 Background	74
	4.2 Risk in the Finance Literature	77
	4.2.1 Relationship Between Security Return and Uncertainty	77
	4.3 Unpacking the Notion of Uncertainty and Risk in Finance	82
	4.3.1 Exogenous Influences on Equity Uncertainty or Risk	82
	4.3.2 Endogenous (Non-human) Influences on Uncertainty in Firm Value	86
	4.3.3 Human Influences on Uncertainty in Firm Value	86
	4.3.4 Governance, Ethics and Sustainability	88
	4.3.5 Proxies for Uncertainty in Firm Performance	90
	4.4 Conclusion: The Return-Uncertainty Link for Equities	91
	Part II: Structure, Conduct and Performance of Fund Manager Investment	93
	5: Building Investment Theory Using the Structure-Conduct-Performance (SCP) Paradigm	94
	5.1 What Is a ‘Good’ Investment Theory?	95
	5.2 Does Investment Theory Have to Be Quantitative?	97
	5.3 Structure-Conduct-Performance (SCP) Paradigm	98
	5.4 Conclusion	100
	6: Structure of Equity Prices	101
	6.1 Compilations of Facts in Finance	102
	6.2 Distribution of Equity Prices	104
	6.2.1 Unexpectedly High Turnover and Volatility	105
	6.2.2 Patterns in Markets	106
	6.2.2.1 Seasonal Patterns in Markets	106
	6.2.2.2 Cyclical Features of Equity Prices	107
	6.2.2.3 Clustering in Returns and Volatility	111
	6.2.2.4 Tendency of Prices to Trend	113
	6.2.3 Macrodrivers of Equity Returns	117
	6.2.4 Other Market Behaviours	119
	6.3 Explanations of Equity Prices	122
	6.3.1 Smart Beta: Systematic Influences on the Cross Section of Stock Returns	122
	6.3.2 Influence on Returns of Firm and Security Traits	124