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This books builds on 'Finance 1: Portfolio Theory and Management'. Both volumes are linked through the asset allocation process. While Finance 1 focused on portfolio theory and strategic asset allocation, Finance 2 deals with tactical asset allocation and market efficiency. We start by reviewing the asset allocation process, market timing and the approach by Black and Litterman. Section 2 deals with the predictability of prices, including technical analysis and momentum. Turning to factors that may cause the predictability - if there is any - we discuss models from behavioural finance. The subsequent section deals with bubbles and herd behaviour, before we finally cover market microstructure and its implications.

The book gives an introduction to portfolio theory and management and shall help the reader to better set up their long-term strategic asset allocation. After an introduction into financial markets, heir instruments and players, the Markowitz portfolio theory is derived. Limitations and alternatives to Markowitz are discussed. Factor models, the capital asset pricing model and the arbitrage pricing theory, as well as the theory of efficient markets are considered, before we turn to the valuation of securities. The final section deals with the steps of asset allocation, performance measurement and international portfolios.

Focusing on the theory of portfolios, this book provides a foundational understanding of investing in assets and securities. Rather than serving as a practical guide for quick profits, it aims to enhance readers' comprehension of investment principles, making it a valuable resource for those looking to deepen their knowledge in the field.