Microsoft PowerPoint - PoF.ppt
SML 61 1st conclusion β ... beta of the asseti ... expected excess return of asset i The CAPM says that the expected exce ...
SML 62 2nd conclusion the variance consists of two parts:- market - / systematic risk and unique - / unsystematic - / d ...
Single-period random cash flows: CAPMCML and SML 63 ...
Critique 64 Testability of the CAPM: Roll’s critique If the portfolio that is used for the comput ation of beta lies on the m ...
Single-period random cash flows: CAPMExamples 65 ...
Single-period random cash flows: CAPMExamples 66 ...
Single-period random cash flows: CAPMExamples 67 ...
Performance measurement 68 The CAPM is often used as benchmark for portfolio performance. Assumption: Pricing structure in th ...
Jensen index 69 Benchmark = SML Jensen index = expected rate of return on the portfolio - what its expected return would be i ...
Jensen index 70 If the fund has a positive Jensen index, it is positioned above the SML, and it is considered to have a good pe ...
Treynor index 71 Benchmark = SML Treynor index = risk premium earned per unit of risk taken, i.e. Single-period random cash f ...
Treynor index 72 Advantage over the Jensen index: Treynor index takes the opportunity to lever into account! Given that we can ...
Sharpe ratio 73 Benchmark = CML Sharpe ratio = risk premium earned per unit of risk exposure, i.e. Single-period random cash ...
Sharpe ratio 74 If the fund has a higher Sharpe ratio than the market, it is positioned above the CML, and it is considered to ...
M² Measure 75 Benchmark = CML M² Measure = risk-free rate of return + risk premium earned per unit of risk exposure * vola of ...
M² Measure 76 M² measure takes the opportunity to lever into account! Given that we can borrow at the risk-free rate we can lev ...
Overview 77 Motivation Single-factor models (SFM) Multi-factor models (MFM) Arbitrage Pricing Theory (APT) Additional l ...
Motivation 78 Estimates of expected returns and covariances between the securities Ä compute efficient set How can one get th ...
Motivation 79 Factor models Risk factors (rate of inflation, growth in industrial production, ...) induce the stock prices ...
Assumption 80 Security returns are correlated for only one reason, i.p. each security is assumed to respond to the pull of a si ...
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