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12 Cards in this Set
- Front
- Back
Idiosyncratic Risk
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Diversiifiable risk; risk has only a negligible impact on the whole economy
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Capital asset pricing model
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Model that expresses the expected return of an asset as a function of the risk free rate, the market premium, and beta
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Beta
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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 |
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Covariance
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Measures the extent to which two variables tend to move together
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Least Squares Regression
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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
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Alpha
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Abnormal return; the additional return above the expected return from a factor model
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Performance Evaluation Regression
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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
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Three Issues of VC low Beta, high alpha
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(1) Style adjustments
(2) Liquidity Risk (3) Stale Values |
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Style Adjustments
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Adjustments made to the CAPM to reflect differential risks for various classes of stocks
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Fama-French Model
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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
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Pastor-Stambaugh Model
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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
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Stale Values
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The phenomenon whereby reporting of VC funds are outdated (reported at the previous financing round even though material changes to the values have occurred)
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