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12 Cards in this Set
- Front
- Back
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Alpha
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The abnormal rate of return on a security in excess of what would be predicted by an equilibrium model like CAPM or APT.
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Beta
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The measure of the systematic risk of a security. The tendency of a security's returns to respond to swings in the broad market.
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Expected return-beta relationship
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Implication of the CAPM that security risk premiums (expected excess returns) will be proportional to beta.
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Homogenous expectations
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The assumption that all investors use the same expected returns and covariance matrix of security returns as inputs in security analysis.
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Illiquidity
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Difficulty, cost, and/or delay in selling an asset on short notice without offering substantial price concessions.
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Liquidity
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Liquidity refers to the speed and ease with which an asset can be converted to cash.
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Market model
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Another version of the index model that breaks down return uncertainty into systematic and nonsystematic components.
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Market portfolio
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The portfolio for which each security is held in proportion to its market value.
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Market price of risk
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A measure of the extra return, or risk premium, that investors demand to bear risk. The reward-torisk ratio of the market portfolio.
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Mutual fund theorem
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A result associated with the CAPM, asserting that investors will choose to invest their entire risky portfolio in a market-index mutual fund.
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Security market line
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Graphical representation of the expected return-beta relationship of the CAPM.
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Zero-beta portfolio
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The minimum-variance portfolio uncorrelated with a chosen efficient portfolio.
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