lec02_02 - ECON 4721H Money and Banking Lecture 02_02...

Info icon This preview shows pages 1–7. 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 Document Right Arrow Icon

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

View Full Document Right Arrow Icon

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

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

Unformatted text preview: ECON 4721H Money and Banking Lecture 02_02 Satoshi Tanaka University of Minnesota September 21, 2011 Satoshi Tanaka ECON 4721H Money and Banking Lecture 02_02 Stock Market II Mean-Variance Frontier and β-CAPM Satoshi Tanaka ECON 4721H Money and Banking Lecture 02_02 Today's Questions What determines the price of each stock? Do idiosyncratic risks matter? How about aggregate (systematic) risks? Satoshi Tanaka ECON 4721H Money and Banking Lecture 02_02 Mean-Variance Frontier of All Assets Claim Rational investors always choose a portfolio which is on the mean-variance frontier of all assets, ( 1- α ) R f + α R m . mean standard deviation R f ER m σ ( R m ) R m Satoshi Tanaka ECON 4721H Money and Banking Lecture 02_02 Mean-Variance Frontier of All Assets Investors prefer higher mean and less volatility of returns. mean standard deviation R f investor’s indifference curves Satoshi Tanaka ECON 4721H Money and Banking Lecture 02_02 Summary of MV Frontier 1 By combining various stocks, we can minimize idosyncratic risks, and can nd the mean-variance frontier of all risky assets . 2 If we draw a tangent line to the MV frontier from the risk-free asset, we can nd the mean-variance frontier of all assets ( capital market line )....
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern