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05 - Capital Asset and Arbitrage Pricing
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Capital Asset Pricing Model (CAPM)
A model that relates the required rate of return for a security to its risk as measured by beta.
Market Portfolio
The portfolio for which each security is held in proportion to its market value.
Managed Fund Theorem
States that all investors desire the same portfolio of risky assets and can be satisfied by a single managed fund.
Expected Return - Beta Relationship
Implication of the CAPM that security risk premiums (expected excess returns) will be proportional to beta.
Security Market Line (SML)
Graphical representation of the expected return-beta relationship of the CAPM.
Security Characteristic Line (SCL)
Plot of a security's expected excess return as a function of the excess return on the market.
Multifactor Models
Models of security returns positing that returns respond to several systematic factors.
Arbitrage Pricing Theory (APT)
A theory of risk-return relationships derived from no-arbitrage considerations in large capital markets.
Well-Diversified Portfolio
A portfolio sufficiently diversified that non-systematic risk is negligible.
Factor Portfolio
A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of zero on any other factor.
Author
Lea_
ID
316808
Card Set
05 - Capital Asset and Arbitrage Pricing
Description
221 - Capital Asset and Arbitrage Pricing
Updated
2016-03-06T22:38:57Z
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