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12 Cards in this Set

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