week9 - Week 9 Tutorial Emily Lo Beta Measure of how much...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Week 9 Tutorial Emily Lo
Background image of page 1

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

View Full Document Right Arrow Icon
Beta Measure of how much market risk an asset has relative to an average asset in the market Contribution of a stock to the total market risk If asset is more volatile than the market, Beta? >> greater than 1.0 If asset is less volatile than market, Beta? >> less than 1.0 β i = cov( r i , r M ) s M 2 = r i , M s i s M s M 2 = r i , M s i s M
Background image of page 2
Market risk premium the extra expected return required by investors to hold a risky asset size of premium depends on 1) investor’s risk aversion 2) expectation of variability of return Portfolio expected return vs Portfolio Beta graph >> slope: reward to risk ratio >> in well functioning market, buying and selling of 2 portfolios will occur until their reward to risk ratio is equal Market risk premium = E ( R M ) - R f
Background image of page 3

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

View Full Document Right Arrow Icon
Security market line (SML) Regression line that relates the beta of a stock to expected return Regression line that demonstrates the Capital Asset
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 6

week9 - Week 9 Tutorial Emily Lo Beta Measure of how much...

This preview shows document pages 1 - 5. Sign up to view the full document.

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