投资学英文版课件：Chap009 The Capital Asset Pricing Model

1、CHAPTER 9The Capital Asset Pricing Model9-1It is the equilibrium model that underlies all modern financial theoryDerived using principles of diversification with simplified assumptionsMarkowitz, Sharpe, Lintner and Mossin are researchers credited with its developmentCapital Asset Pricing Model (CAPM

2、)9-2AssumptionsIndividual investors are price takersSingle-period investment horizonInvestments are limited to traded financial assetsNo taxes and transaction costsInformation is costless and available to all investorsInvestors are rational mean-variance optimizersThere are homogeneous expectations9

3、-3All investors will hold the same portfolio for risky assets market portfolioMarket portfolio contains all securities and the proportion of each security is its market value as a percentage of total market valueResulting Equilibrium Conditions9-4Risk premium on the market depends on the average ris

4、k aversion of all market participantsRisk premium on an individual security is a function of its covariance with the marketResulting Equilibrium Conditions9-5Figure 9.1 The Efficient Frontier and the Capital Market Line9-6Market Risk PremiumThe risk premium on the market portfolio will be proportion

5、al to its risk and the degree of risk aversion of the investor:9-7The risk premium on individual securities is a function of the individual securitys contribution to the risk of the market portfolio.An individual securitys risk premium is a function of the covariance of returns with the assets that

6、make up the market portfolio.Return and Risk For Individual Securities9-8GE ExampleCovariance of GE return with the market portfolio:Therefore, the reward-to-risk ratio for investments in GE would be:9-9GE ExampleReward-to-risk ratio for investment in market portfolio:Reward-to-risk ratios of GE and

7、 the market portfolio should be equal:9-10GE ExampleThe risk premium for GE:Restating, we obtain:9-11Expected Return-Beta RelationshipCAPM holds for the overall portfolio because:This also holds for the market portfolio:9-12Figure 9.2 The Security Market Line9-13Figure 9.3 The SML and a Positive-Alp

8、ha Stock9-14The Index Model and Realized ReturnsTo move from expected to realized returns, use the index model in excess return form:The index model beta coefficient is the same as the beta of the CAPM expected return-beta relationship.9-15Figure 9.4 Estimates of Individual Mutual Fund Alphas, 1972-

9、19919-16Is the CAPM Practical?CAPM is the best model to explain returns on risky assets. This means:Without security analysis, is assumed to be zero.Positive and negative alphas are revealed only by superior security analysis.9-17Is the CAPM Practical?We must use a proxy for the market portfolio. CA

10、PM is still considered the best available description of security pricing and is widely accepted.9-18Econometrics and the Expected Return-Beta RelationshipStatistical bias is easily introduced.Miller and Scholes paper demonstrated how econometric problems could lead one to reject the CAPM even if it

11、 were perfectly valid.9-19Extensions of the CAPMZero-Beta ModelHelps to explain positive alphas on low beta stocks and negative alphas on high beta stocksConsideration of labor income and non-traded assets9-20Extensions of the CAPMMertons Multiperiod Model and hedge portfoliosIncorporation of the ef

12、fects of changes in the real rate of interest and inflationConsumption-based CAPMRubinstein, Lucas, and BreedenInvestors allocate wealth between consumption today and investment for the future9-21Liquidity and the CAPMLiquidity: The ease and speed with which an asset can be sold at fair market value

13、Illiquidity Premium: Discount from fair market value the seller must accept to obtain a quick sale. Measured partly by bid-asked spreadAs trading costs are higher, the illiquidity discount will be greater.9-22Figure 9.5 The Relationship Between Illiquidity and Average Returns9-23Liquidity RiskIn a financi