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12 Cards in this Set

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Idiosyncratic Risk
Diversiifiable risk; risk has only a negligible impact on the whole economy
Capital asset pricing model
Model that expresses the expected return of an asset as a function of the risk free rate, the market premium, and beta
Beta
The factor loading of an asset on the market portfolio within the CAPM
Beta is a number describing the correlated volatility of an asset in relation to the volatility of the benchmark/market
Covariance
Measures the extent to which two variables tend to move together
Least Squares Regression
A statistical technique whereby an analyst attempts to find the best equation to explain a set of data; finding the line to fit the data using linear regression
Alpha
Abnormal return; the additional return above the expected return from a factor model
Performance Evaluation Regression
The estimation of a factor model on returns generated by an investment manager- the estimate of alpha is then interpreted as the performance of the manager
Three Issues of VC low Beta, high alpha
(1) Style adjustments
(2) Liquidity Risk
(3) Stale Values
Style Adjustments
Adjustments made to the CAPM to reflect differential risks for various classes of stocks
Fama-French Model
A multifactor model with three factors related to the market premium, the size of the company, and the growth prospects of the company; a zero cost portfolio balanced between a 100% long positions in stocks and a 100% short position in bonds
Pastor-Stambaugh Model
A multifactor model with four factors related to the market premium, the size of the company, the growth prospects of the company, and the liquidity risk of the company
Stale Values
The phenomenon whereby reporting of VC funds are outdated (reported at the previous financing round even though material changes to the values have occurred)