Bus 315 - Week10

Bus 315 - Week10 - Week 10 Equilibrium in Capital Markets I...

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Week 10 Equilibrium in Capital Markets I: The Capital Asset Pricing Model - Bodie et al., Ch. 8 1 Jorge Cruz Lopez - Bus 315: Investments
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The Capital Asset Pricing Model Objective: To present the basic version of the CAPM and its applicability. 2 Jorge Cruz Lopez - Bus 315: Investments
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The Capital Asset Pricing Model 1. The Capital Asset Pricing Model 2. Applying the CAPM 3. Is the CAPM practical? 4. Extensions of the CAPM 5. Liquidity and the CAPM 3 Jorge Cruz Lopez - Bus 315: Investments
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1. The Capital Asset Pricing Model 4 Jorge Cruz Lopez - Bus 315: Investments
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The Capital Asset Pricing Model (CAPM) Equilibrium model that underlines all modern financial theory. • Derived using principles of diversification with simplified assumptions. • Markowitz, Sharpe, Lintner and Mossin are researchers credited with its development. 5 Jorge Cruz Lopez - Bus 315: Investments
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Assumptions 1. Individual investors are price takers. 2. Single-period investment horizon. 3. Investments are limited to traded financial assets. 4. No taxes, and transaction costs. 6 Jorge Cruz Lopez - Bus 315: Investments
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5. Information is costless and available to all investors. 6. Investors are rational mean-variance optimizers. 7. There are homogeneous expectations.
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Bus 315 - Week10 - Week 10 Equilibrium in Capital Markets I...

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