吉林大学：《金融学》专题教学资源（PPT课件讲稿）Modern Portfolio Theory The Capital Asset Pricing Model

Modern portfolio theory The Capital asset pricing Model By Ding zhaoyong

Modern Portfolio Theory The Capital Asset Pricing Model By Ding zhaoyong

Main contents The caPm's assumptions Market equilibrium The Capital market Line(CMl) The security Market Line(sMl) The market model The Security Characteristic Line scl The Capital Allocation Line(Cal)

Main Contents • The CAPM’s Assumptions • Market equilibrium • The Capital Market Line (CML) • The Security Market Line (SML) • The market model • The Security Characteristic Line (SCL) • The Capital Allocation Line (CAL)

How An Investor makes Inⅴ estment decision First, identify his or her eficient frontier Estimate the expected returns and variances for all securities under consideration Estimate all the covariances among assets Determine the riskfree rate Determine the tangency portfolio Consequently, the eficient set is linear

How An Investor Makes Investment Decision • First, identify his or her efficient frontier – Estimate the expected returns and variances for all securities under consideration. – Estimate all the covariances among assets. – Determine the riskfree rate – Determine the tangency portfolio – Consequently, the efficient set is linear

How An Investor makes Inⅴ estment decision Second, Identify his or her indifference curve Test his or her preference on risk-return and risk tolerance Finally, identify his or her optimal portfolio Let the indifference curve touches but does not intersect the efficient set

How An Investor Makes Investment Decision • Second, Identify his or her indifference curve. – Test his or her preference on risk-return and risk tolerance. • Finally, identify his or her optimal portfolio – Let the indifference curve touches but does not intersect the efficient set

How An Investor makes Inⅴ estment decision The problem is how the investor evaluate the expected returns and risks when they make investment decisions We hereafter introduce some theories or models about how the value of an asset is determined or priced The capitalAsset Pricing Model (CaPm) The Factor Models(Fm) The arbitrary pricing Theory(apt)

How An Investor Makes Investment Decision • The problem is how the investor evaluate the expected returns and risks when they make investment decisions. • We hereafter introduce some theories or models about how the value of an asset is determined or priced. – The Capital Asset Pricing Model (CAPM) – The Factor Models (FM) – The Arbitrary Pricing Theory (APT)

The assumptions of caPM Investors evaluate portfolios by looking at the expected returns and standard deviations of the portfolios over a one-period horizon. Investors are never satiated, so when given a choice between two otherwise identical portfolios, they will choose the one with the higher expected return Investors are risk-averse, so when given a choice between two otherwise identical portfolios, they wil choose the one with the lower standard deviation

The Assumptions of CAPM • Investors evaluate portfolios by looking at the expected returns and standard deviations of the portfolios over a one-period horizon. • Investors are never satiated, so when given a choice between two otherwise identical portfolios, they will choose the one with the higher expected return. • Investors are risk-averse, so when given a choice between two otherwise identical portfolios,they will choose the one with the lower standard deviation

The assumptions of CAPM Individual assets are infinitely divisible meaning that an investor can by a fraction of a share if he or she so desires There is a riskfree rate at which an investor may either lend or borrow money. Taxes and transaction costs are irrelevant All investors have the same one-period horizon

The Assumptions of CAPM • Individual assets are infinitely divisible, meaning that an investor can by a fraction of a share if he or she so desires. • There is a riskfree rate at which an investor may either lend or borrow money. • Taxes and transaction costs are irrelevant. • All investors have the same one-period horizon

The assumptions of CAPM The riskfree rate is the same for all investors Information is freely and instantly available to all investors Investors have homogeneous expectations, meaning that they have the same perceptions in regard to the expected returns, standard deviation and covariances of securities

The Assumptions of CAPM • The riskfree rate is the same for all investors • Information is freely and instantly available to all investors • Investors have homogeneous expectations, meaning that they have the same perceptions in regard to the expected returns, standard deviation, and covariances of securities

The assumptions of CAPM Implicit means behind the assumptions Efficient market k Everyone has the same information and agrees about the future prospects for assets Perfect market < There are on frictions to impede investing Equilibrium market k Risk-return trade-off

The Assumptions of CAPM • Implicit means behind the assumptions – Efficient Market «Everyone has the same information and agrees about the future prospects for assets – Perfect Market «There are on frictions to impede investing – Equilibrium Market «Risk-return trade-off

The Capital market Line The separation Theorem Everyone would obtain in equilibrium the same tangency. K All investors face the same efficient set Each investor will choose the same com bination of risky securities Each investor will spread his or her funds among risky securities in the same relative proportions

The Capital Market Line • The Separation Theorem – Everyone would obtain in equilibrium the same tangency. «All investors face the same efficient set. – Each investor will choose the same combination of risky securities «Each investor will spread his or her funds among risky securities in the same relative proportions