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Market Portfolio
Market portfolio is a portfolio consisting of a weighted sum of every asset in the market, with weights in the proportions that they exist in the market, with the necessary assumption that these assets are infinitely divisible. Richard Roll's critique states that this is only a theoretical concept, as to create a market portfolio for investment purposes in practice would necessarily include every single possible available asset, including real estate, precious metals, stamp collections, jewelry, and anything with any worth, as the theoretical market being referred to would be the world market. There is some question of whether what is used for the market portfolio really matters. Some authors say that it does not make a big difference; you can use any representative index and get similar results. Roll gave an example where different indexes produce much different results, and that by choosing the index you can get any ranking you want. Brown and Brown (1987) examine this, using dif ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Weighted Sum
A weight function is a mathematical device used when performing a sum, integral, or average to give some elements more "weight" or influence on the result than other elements in the same set. The result of this application of a weight function is a weighted sum or weighted average. Weight functions occur frequently in statistics and analysis, and are closely related to the concept of a measure. Weight functions can be employed in both discrete and continuous settings. They can be used to construct systems of calculus called "weighted calculus" and "meta-calculus".Jane Grossma''Meta-Calculus: Differential and Integral'' , 1981. Discrete weights General definition In the discrete setting, a weight function w \colon A \to \R^+ is a positive function defined on a discrete set A, which is typically finite or countable. The weight function w(a) := 1 corresponds to the ''unweighted'' situation in which all elements have equal weight. One can then apply this weight to various concep ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Asset Pricing Model
In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio. The model takes into account the asset's sensitivity to non-diversifiable risk (also known as systematic risk or market risk), often represented by the quantity beta (β) in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset. CAPM assumes a particular form of utility functions (in which only first and second moments matter, that is risk is measured by variance, for example a quadratic utility) or alternatively asset returns whose probability distributions are completely described by the first two moments (for example, the normal distribution) and zero transaction costs (necessary for diversification to get rid of all idiosyncratic risk). Under these conditions, CAPM shows that the cost of eq ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Security Characteristic Line
Security characteristic line (SCL) is a regression line, plotting performance of a particular security or portfolio against that of the market portfolio at every point in time. The SCL is plotted on a graph where the Y-axis is the excess return on a security over the risk-free return and the X-axis is the excess return of the market in general. The slope of the SCL is the security's beta, and the intercept is its alpha. Formula :\mathrm : R_ - R_ = \alpha_i + \beta_i\, ( R_ - R_ ) + \epsilon_ where: :''α''''i'' is called the asset's alpha (abnormal return) :''βi''(''R''''M'',''t'' – ''Rf'') is a nondiversifiable or systematic risk :''ε''''i'',''t'' is the non-systematic or diversifiable, non-market or idiosyncratic risk :''R''''M'',''t'' is the return to market portfolio :''Rf'' is a risk-free rate See also * Security market line * Capital allocation line * Capital market line * Modern portfolio theory Modern portfolio theory (MPT), or mean-variance analysis, is a math ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Security Market Line
Security market line (SML) is the representation of the capital asset pricing model. It displays the expected rate of return of an individual security as a function of systematic, non-diversifiable risk. The risk of an individual risky security reflects the volatility of the return from security rather than the return of the market portfolio. The risk in these individual risky securities reflects the systematic risk. Formula The Y-intercept of the SML is equal to the risk-free interest rate. The slope of the SML is equal to the market risk premium and reflects the risk return tradeoff at a given time: :\mathrm : E(R_i) = R_f + \beta_ (R_M) - R_f, where: : is an expected return on security : is an expected return on market portfolio :''β'' is a nondiversifiable or systematic risk : is a market rate of return : is a risk-free rate When used in portfolio management, the SML represents the investment's opportunity cost (investing in a combination of the market portfolio and the ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Allocation Line
Capital allocation line (CAL) is a graph created by investors to measure the risk of risky and risk-free assets. The graph displays the return to be made by taking on a certain level of risk. Its slope is known as the "reward-to-variability ratio". Formula The capital allocation line is a straight line that has the following equation: :\mathrm : E(r_) = r_F + \sigma_C \frac In this formula ''P'' is the risky portfolio, ''F'' is riskless portfolio, and ''C'' is a combination of portfolios ''P'' and ''F''. The slope of the capital allocation line is equal to the incremental return of the portfolio to the incremental increase of risk. Hence, the slope of the capital allocation line is called the reward-to-variability ratio because the expected return increases continually with the increase of risk as measured by the standard deviation. Derivation If investors can purchase a risk free asset with some return ''rF'', then all correctly priced risky assets or portfolios will have ex ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Market Line
Capital market line (CML) is the tangent line drawn from the point of the risk-free asset to the feasible region for risky assets. The tangency point M represents the market portfolio, so named since all rational investors (minimum variance criterion) should hold their risky assets in the same proportions as their weights in the market portfolio. Formula :\mathrm : \sigma_p \mapsto R_f +\sigma_p \cdot\frac The CML results from the combination of the market portfolio and the risk-free asset (the point L). All points along the CML have superior risk-return profiles to any portfolio on the efficient frontier, with the exception of the Market Portfolio, the point on the efficient frontier to which the CML is the tangent. From a CML perspective, the portfolio M is composed entirely of the risky asset, the market, and has no holding of the risk free asset, i.e., money is neither invested in, nor borrowed from the money market account. Points to the left of and above the CML are infeasibl ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Asset Allocation
Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment time frame. The focus is on the characteristics of the overall portfolio. Such a strategy contrasts with an approach that focuses on individual assets. Description Many financial experts argue that asset allocation is an important factor in determining returns for an investment portfolio. Asset allocation is based on the principle that different assets perform differently in different market and economic conditions. A fundamental justification for asset allocation is the notion that different asset classes offer returns that are not perfectly correlated, hence diversification reduces the overall risk in terms of the variability of returns for a given level of expected return. Asset diversification has been described as "the only free lunch ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
William F
William is a male given name of Germanic origin.Hanks, Hardcastle and Hodges, ''Oxford Dictionary of First Names'', Oxford University Press, 2nd edition, , p. 276. It became very popular in the English language after the Norman conquest of England in 1066,All Things William"Meaning & Origin of the Name"/ref> and remained so throughout the Middle Ages and into the modern era. It is sometimes abbreviated "Wm." Shortened familiar versions in English include Will, Wills, Willy, Willie, Bill, and Billy. A common Irish form is Liam. Scottish diminutives include Wull, Willie or Wullie (as in Oor Wullie or the play ''Douglas''). Female forms are Willa, Willemina, Wilma and Wilhelmina. Etymology William is related to the given name ''Wilhelm'' (cf. Proto-Germanic ᚹᛁᛚᛃᚨᚺᛖᛚᛗᚨᛉ, ''*Wiljahelmaz'' > German ''Wilhelm'' and Old Norse ᚢᛁᛚᛋᛅᚼᛅᛚᛘᛅᛋ, ''Vilhjálmr''). By regular sound changes, the native, inherited English form of the name shoul ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Roll's Critique
Roll's critique is a famous analysis of the validity of empirical tests of the capital asset pricing model (CAPM) by Richard Roll. It concerns methods to formally test the statement of the CAPM, the equation :E(R_i) = R_f + \beta_ (R_m) - R_f\, This equation relates an asset's expected return E(R_i) to the asset's sensitivity \beta_ to the market portfolio return R_m. The market return is defined as the wealth-weighted sum of all investment returns in the economy. Roll's critique makes two statements regarding the market portfolio: 1. Mean-variance tautology: Any mean-variance efficient portfolio R_p satisfies the CAPM equation ''exactly'': :E(R_i) = R_f + \beta_ (R_p) - R_f,. (A portfolio is mean-variance efficient if there is no portfolio that has a higher return and lower risk than those for the efficient portfolio.) Mean-variance efficiency of the market portfolio is equivalent to the CAPM equation holding. This statement is a mathematical fact, requiring ''no'' model assu ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Asset
In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can be converted into cash (although cash itself is also considered an asset). The balance sheet of a firm records the monetaryThere are different methods of assessing the monetary value of the assets recorded on the Balance Sheet. In some cases, the ''Historical Cost'' is used; such that the value of the asset when it was bought in the past is used as the monetary value. In other instances, the present fair market value of the asset is used to determine the value shown on the balance sheet. value of the assets owned by that firm. It covers money and other valuables belonging to an individual or to a business. Assets can be grouped into two major classes: Tangible property, tangible assets and intangible assets. Tangible ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
S&P 500
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. As of December 31, 2020, more than $5.4 trillion was invested in assets tied to the performance of the index. The S&P 500 index is a free-float weighted/capitalization-weighted index. As of August 31, 2022, the nine largest companies on the list of S&P 500 companies accounted for 27.8% of the market capitalization of the index and were, in order of highest to lowest weighting: Apple, Microsoft, Alphabet (including both class A & C shares), Amazon.com, Tesla, Berkshire Hathaway, UnitedHealth Group, Johnson & Johnson and ExxonMobil. The components that have increased their dividends in 25 consecutive years are known as the S&P 500 Dividend Aristocrats. The index is one of the factors in computation of the Conference Board Leading Economic Index ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and Northern Ireland. The United Kingdom includes the island of Great Britain, the north-eastern part of the island of Ireland, and many smaller islands within the British Isles. Northern Ireland shares a land border with the Republic of Ireland; otherwise, the United Kingdom is surrounded by the Atlantic Ocean, the North Sea, the English Channel, the Celtic Sea and the Irish Sea. The total area of the United Kingdom is , with an estimated 2020 population of more than 67 million people. The United Kingdom has evolved from a series of annexations, unions and separations of constituent countries over several hundred years. The Treaty of Union between the Kingdom of England (which included Wales, annexed in 1542) and the Kingdom of Scotland in 170 ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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