[英语学习]lecture10CAPM.ppt

Lecture 10 Capital Asset Pricing Model  What do we know? There is usually a reward for bearing risk, that is, the risk premium. The risk premium is usually larger for riskier investments. The relation between return and risk holds for the aggregate market. Outline for Lecture 7 Review of Statistics Diversification Types of Risk CAPM and Beta Challenges to CAPM Review of Statistics The difference between EXPECTED RETURN and HISTORICAL AVERAGE RETURN: Expected return is the return that the investors expect (based on their current knowledge) over a certain future period. Historical average return is the realized return over a certain past period. Expected Returns Assumptions： Expected Returns Expected Return of Stock A Variance Variance of Return on Stock A Standard Deviation Standard deviation is the square root of the variance. Standard deviation is somewhat easier to interpret than variance because it has the same units as the expected return. Summary of Results Portfolios So far, we have concentrated on individual assets but most investors hold more than one asset. A portfolio is when an investor invests part of his wealth in more than one asset. Portfolio weights: the wealth invested in individual asset as a percentage of the total portfolio’s value. HARRY M. MARKOWITZ 1990 Nobel Laureate in Economics for their pioneering work in the theory of financial economics. Background Born: 1927Affiliation: City University of New York, NY papers Markowitz, Harry. 1952. Portfolio Selection. Journal of Finance 7, 77-91. Markowitz, Harry. 1959. Portfolio Selection: Efficient Diversification of Investments. Cowles Foundation Monograph No. 16. New York: Wiley Sons, Inc. Returns and Risk on a Portfolio What are the expected return and variance of our portfolio? The return on our portfolio is The variance of our portfolio is Covariance Covariance is a measure of co-movement between two random variables (how much two variables vary together). Note that v