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Unformatted text preview: Ec 136, Financial Economics Lecture 21 November 17 Outline for today 1. CAPM betarepresentation 2. Security market line 3. CAPM tests 4. Factor models www.econ.berkeley.edu/~szeidl/ec136/ec136index.htm Readings: BKM Chapter 9.1, 10.110.2, 11.111.5 (9.19.4, 10.110.5 in editions 7&8) Problem set 7 : due November 19, Thurs, in class. 1. CAPM beta representation & For any asset return R i E R i R f = & i & E R m R f where R m is return on the market portfolio and & i = cov ( R i ; R m ) var ( R m ) can be estimated from time series regression R i R f = i + & i & R m R f + " i : & Intuition for covar: by adding i of R i to portfolio, change in var: var h R m + i & R i R f i = = 2 m + 2 i 2 i + 2 i cov [ R m ; R i ] 2 m + 2 i cov [ R m ; R i ] : Proof logic & Consider two simultaneous portfolio shifts, into asset i and into asset j ....
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 Fall '08
 SZEIDL

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