Lecture04

# Lecture04 - goes down and in before it goes up, is: 1. A...

This preview shows pages 1–11. Sign up to view the full content.

Lecture 4: Portfolio Diversification and Supporting Financial Institutions Economics 252, Spring 2008 Prof. Robert Shiller, Yale University

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

View Full Document
Optimal Portfolio Diversification in General Case • Drop assumption of equal weighting, independence and equal variance • Put x i dollars in i th asset, I =1,. ., n , where the x i sum to \$1. • Portfolio expected value • Portfolio variance (two assets) =
Efficient Portfolio Frontier with Two Assets • Frontier expresses portfolio standard deviation in terms of portfolio expected return r rather than in terms of x 1 .

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

View Full Document
Portfolio Variance, Three Assets • Portfolio variance =
Efficient Portfolio Frontier

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

View Full Document
Beta • The CAPM implies that the expected return on the ith asset is determined from its beta. • Beta ( i ) is the regression slope coefficient when the return on the ith asset is regressed on the return on the market. • Fundamental equation of the CAPM:

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

View Full Document
Survey of Individual Investors 1999 “Trying to time the market, to get out before it

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

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

Unformatted text preview: goes down and in before it goes up, is: 1. A smart thing to do; I can reasonably expect to be a success at it. 11% 2. Not a smart thing to do; I cant reasonably expect to be a success at it. 83% 3. No opinion 5% Survey of Individual Investors 1999 Trying to pick individual stocks, for example, if and when Ford Motor stock will go up, or IBM stock will go up, is: 1. A smart thing to do; I can reasonably expect to be a success at it. 40% 2. Not a smart thing to do; I cant reasonably expect to be a success at it. 51% 3. No opinion 8% Survey of Individual Investors 1999 Trying to pick mutual funds, trying to figure out which funds have experts who can themselves pick which stock will go up, is: 1. A smart thing to do; I can reasonably expect to be a success at it. 50% 2. Not a smart thing to do; I cant reasonably expect to be a success at it. 27% 3. No opinion 23%...
View Full Document

## This note was uploaded on 02/08/2012 for the course ECON 252 taught by Professor Robertshiller during the Spring '08 term at Yale.

### Page1 / 11

Lecture04 - goes down and in before it goes up, is: 1. A...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online