capm - 41 Wkh Fdslwdo Dvvhw Sulflqj Prgho Wkh fdslwdo dvvhw...

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41 Wkh Fdslwdo Dvvhw Sulflqj Prgho Wkh fdslwdo dvvhw sulflqj prgho +FDSP, lv dq htxloleulxp prgho iru h{shfwhg uhwxuqv dqg uholhv rq d vhw ri udwkhu vwulfw dvvxpswlrqv1 FDSP Dvvxpswlrqv 41 Pdq| lqyhvwruv zkr duh doo sulfh wdnhuv 51 Doo lqyhvwruv sodq wr lqyhvw ryhu wkh vdph wlph krul}rq 61 Wkhuh duh qr wd{hv ru wudqvdfwlrqv frvwv 71 Lqyhvwruv fdq eruurz dqg ohqg dw wkh vdph ulvn0iuhh udwh ryhu wkh sodqqhg lqyhvwphqw krul}rq 81 Lqyhvwruv rqo| fduh derxw h{shfwhg uhwxuq dqg yduldqfh1 Lqyhvwruv olnh h{0 shfwhg uhwxuq exw glvolnh yduldqfh1 +D vx!flhqw frqglwlrq iru wklv lv wkdw uhwxuqv duh doo qrupdoo| glvwulexwhg, 91 Doo lqyhvwruv kdyh wkh vdph lqirupdwlrq dqg eholhiv derxw wkh glvwulexwlrq ri uhwxuqv :1 Wkh pdunhw sruwirolr frqvlvwv ri doo sxeolfo| wudghg dvvhwv Wkh lpsolfdwlrqv ri wkhvh dvvxpswlrqv duh dv iroorzv 41 Doo lqyhvwruv xvh wkh Pdunrzlw} dojrulwkp wr ghwhuplqh wkh vdph vhw ri h!flhqw sruwirolrv1 Wkdw lv/ wkh h!flhqw sruwirolrv duh frpelqdwlrqv ri wkh ulvn0iuhh dvvhw dqg wkh wdqjhqf| sruwirolr dqg hyhu|rqh*v ghwhuplqdwlrq ri wkh wdqjhqf| sruwirolr lv wkh vdph1 51 Ulvn dyhuvh lqyhvwruv sxw d pdmrulw| ri zhdowk lq wkh ulvn0iuhh dvvhw +l1h1 ohqg dw wkh ulvn0iuhh udwh, zkhuhdv ulvn wrohudqw lqyhvwruv eruurz dw wkh ulvn0iuhh udwh dqg ohyhudjh wkhlu kroglqjv ri wkh wdqjhqf| sruwirolr1 Lq htxloleulxp wrwdo eruurzlqj dqg ohqglqj pxvw htxdol}h vr wkdw wkh ulvn0iuhh dvvhw lv lq }hur qhw vxsso| zkhq zh djjuhjdwh dfurvv doo lqyhvwruv1 61 Vlqfh hyhu|rqh krogv wkh vdph wdqjhqf| sruwirolr dqg wkh ulvn0iuhh dvvhw lv lq }hur qhw vxsso| lq wkh djjuhjdwh/ zkhq zh djjuhjdwh ryhu doo lqyhvwruv wkh djjuhjdwh ghpdqg iru dvvhwv lv vlpso| wkh wdqjhqf| sruwirolr1 Wkh vxsso| ri doo dvvhwv lv vlpso| wkh pdunhw sruwirolr +zkhuh wkh zhljkw ri dq dvvhw
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lq wkh pdunhw sruwirolr lv mxvw wkh pdunhw ydoxh ri wkh dvvhw glylghg e| wkh wrwdo pdunhw ydoxh ri doo dvvhwv, dqg lq htxloleulxp vxsso| htxdo ghpdqg1 Wkhuhiruh/ lq htxloleulxp wkh wdqjhqf| sruwirolr lv wkh pdunhw sruwirolr1 71 Vlqfh wkh pdunhw sruwirolr lv wkh wdqjhqf| sruwirolr dqg wkh wdqjhqf| sruw0 irolr lv +phdq0yduldqfh, h!flhqw wkh pdunhw sruwirolr lv dovr +phdq0yduldqfh, h!flhqw1 81 Vlqfh wkh pdunhw sruwirolr lv h!flhqw dqg wkhuh lv d ulvn0iuhh dvvhw wkh vhfxulw| pdunhw olqh +VPO, sulflqj uhodwlrqvkls krogv iru doo dvvhwv +dqg sruwirolrv, . d - o' o o n q E . d - | o o s ru > ' o s n q E >  o s zkhuh - ghqrwhv wkh uhwxuq rq dq| dvvhw ru sruwirolr c -  ghqrwhv wkh uhwxuq rq wkh pdunhw sruwirolr dqg q ' SJ E - c-  * @o E - 6 Wkh VPO vd|v wkdw wkhuh lv d olqhdu uhodwlrqvkls ehwzhhq wkh h{shfwhg uhwxuq rq dq dvvhw dqg wkh ehwd ri wkdw dvvhw zlwk wkh pdunhw sruwirolr1 Jlyhq d ydoxh iru wkh pdunhw ulvn suhplxp/ . d - o o o : f c wkh kljkhu wkh ehwd rq dq dvvhw wkh kljkhu wkh h{shfwhg uhwxuq rq wkh dvvhw dqg ylfh0yhuvd1 Wkh VPO uhodwlrqvkls fdq eh uhzulwwhq lq whupv ri ulvn suhpld e| vlpso| vxewudfwlqj o s iurp erwk vlgh ri wkh VPO htxdwlrq= . d - o o o ' q E . d - | o o s ru > o s ' q E >  o s dqg wklv olqhdu uhodwlrqvkls lv looxvwudwhg judsklfdoo| lq jxuh 41 Lq whupv ri ulvn
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This note was uploaded on 09/13/2011 for the course ECON 503 taught by Professor Pujara during the Spring '11 term at Punjab Engineering College.

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capm - 41 Wkh Fdslwdo Dvvhw Sulflqj Prgho Wkh fdslwdo dvvhw...

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