Chap010 - Investments Bodie, Kane and Marcus CHAPTER 10...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Investments Bodie, Kane and Marcus CHAPTER 10 CHAPTER 10 Arbitrage Pricing Arbitrage Pricing Theory and Theory and Multifactor Multifactor Models of Risk Models of Risk and Return and Return 10-2 Single Factor Model • Returns on a security come from two sources – Common macro-economic factor – Firm specific events • Possible common macro-economic factors – Gross Domestic Product Growth – Interest Rates 10-3 Single Factor Model Equation r i = Return for security I = Factor sensitivity or factor loading or factor beta F = Surprise in macro-economic factor (F could be positive, negative or zero) e i = Firm specific events ( ) i i i i r E r F e β = + + i β 10-4 Multifactor Models • Use more than one factor in addition to market return – Examples include gross domestic product, expected inflation, interest rates etc. – Estimate a beta or factor loading for each factor using multiple regression. 10-5 Multifactor Model Equation r i = E(r i ) + GDP GDP + IR IR + e i r i = Return for security...
View Full Document

This note was uploaded on 04/19/2011 for the course FINA 513 taught by Professor Chan during the Spring '11 term at Atlantic PR.

Page1 / 18

Chap010 - Investments Bodie, Kane and Marcus CHAPTER 10...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online