lecture 17 - Prof Irvine FINA 4310 Prof Irvine FINA 4310...

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Unformatted text preview: Prof Irvine FINA 4310 Prof Irvine FINA 4310 Lecture 17-18 1) Security Characteristic Line Review 2) Practice Questions 3) Fama-French 3 factor model- Womack: Understanding Risk and Returnthe CAPM- SSRN (link in syllabus) Prof Irvine FINA 4310 Prof Irvine FINA 4310 Limits to Diversification Number of Assets Portfolio Variance 1 N Systematic Risk Firm-specific Risk Prof Irvine FINA 4310 Prof Irvine FINA 4310 E(r) E(rM ) r f M CML m Capital Market Line Prof Irvine FINA 4310 Prof Irvine FINA 4310 E(r) E(rM ) r f SML M = 1.0 Security Market Line Prof Irvine FINA 4310 Prof Irvine FINA 4310 Estimating Estimate beta from historical data, using regression analysis ( 29 t i t f t M i i t f t i e r r b a r r , , , , , +- + =- (SCL) data data intercept beta estimate error term Prof Irvine FINA 4310 Prof Irvine FINA 4310 Estimating the Model Excess Returns (i) Security Characteristic Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess returns on market index Ri = i + iRm + ei Prof Irvine FINA 4310 Google stock price against the S&P 500 Prof Irvine FINA 4310 Prof Irvine FINA 4310 Google SCL error plot Prof Irvine FINA 4310 Prof Irvine FINA 4310 Prof Irvine FINA 4310 Estimated coefficient Std error of estimate Variance of residuals = 12.585 Std dev of residuals = 3.548 R-SQR = 0.575 - 2.591 (1.59) 1.136 (0.309 ) rGM - rf = + (rm - rf) + error Regression Results Prof Irvine FINA 4310 Google SCL Prof Irvine FINA 4310 Prof Irvine FINA 4310 Prof Irvine FINA 4310 Another beta spreadsheet example Similar to Table 7.2 - Google Prof Irvine...
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This note was uploaded on 06/05/2011 for the course FINA 4310 taught by Professor Staff during the Fall '08 term at University of Georgia Athens.

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lecture 17 - Prof Irvine FINA 4310 Prof Irvine FINA 4310...

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