BU473 Lecture Notes - Csts, Capital Asset Pricing Model, Capitalization Rate
Document Summary
In eqil"m, all inv hold same port. of risky assets is the mkt por mkt port is on efficient frontier and is the tangency port in eqil"m excss dmd for any asst is 0. Cml risk, sml b only risk inv will pay to avd is covariance risk. ^^gives you secrts char line betas more stable for large ports (avg"ing effect) Single factor model: ri = whre f is unanticipated mvmnt in some macro factor single index model: see mkt model to fnd b multifactor models: same as sgle fctr, but add in other fctrs w/ their betas . Fama and fra 3 fctr mdl: e(r) of sml mkt cap stks less the rtrn of lg mkt cap stk smb, e(r) of high bk-to-mkt stks less the rtrn of low b-t-m stk hml, e(r) on mkt index. Ri = alpha + bm(rm-rf) + bsizesmb + bbmhml + ei.
