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Quantitative Level:
Topics Covered:
Equity factors, dividend yield, industrial production, interest rate, term spread, default spread, inflation, exchange rates, GNP, GDP, trade deficit, money supply, unemployment, previous stock returns, January effect, annual return factor model, monthly return factor model for stocks
Reading Abstract:
After reviewing the Arbitrage Pricing Theory (APT) and factor models generally in chapter 2, this chapter focuses on research done on factors associated with changes in equity market returns. The chapter is filled with useful and practical information about the many potential factors for equity portfolios that have been investigated in prior research. The chapter is non-technical and a quick read.
Reading Contents:
3.1 Searching for a fundamental approach
3.2 Factors investigated for an equity return model
3.3 Dividend yield
3.4 Industrial production
3.5 Interest rate
3.6 Term spread
3.7 Default spread
3.8 Inflation
3.9 Exchange rates
3.10 GNP or GDP
3.11 Trade or trade deficit
3.12 Money supply
3.13 Unemployment
3.14 Previous stock returns
3.15 January effect
3.16 Other factors found to be significant
3.17 Other considerations
3.18 Annual return factor model for stocks
3.19 Monthly return factor model for stocks
Book Review:
*** From the publisher ***

An exciting new model for improved asset allocation accuracy in every market environment.

Modern Portfolio Theory (MPT) and asset allocation are the foundations on which most institutional investors base their decisions. But many aspects of MPT weren`t designed for today`s fast-changing markets.

Dynamic Portfolio Theory and Management introduces a time-adaptive procedure that addresses this issue and simplifies the decision-making process. While asset allocation programs must adapt themselves to changing market conditions to succeed, how to accomplish that has been another matter. This book reveals a new model that:

* Helps investors change allocations based on economic factors
* Optimizes multi-time periods into a single future time period
* Assists forecasting of stock prices, bond prices, and interest rates

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