Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
17 Cards in this Set
- Front
- Back
|
Diversifiable risk
|
Risk attributable to firm-specific risk, or nonmarket risk. Nondiversifiable risk refers to systematic or market risk.
|
|
|
Diversification
|
Spreading a portfolio over many investments to avoid excessive exposure to any one source of risk.
|
|
|
Efficient frontier of risky assets
|
The portion of the minimum-variance frontier that lies above the global minimum-variance portfolio.
|
|
|
Firm-specific risk
|
See diversifiable risk.
|
|
|
Input list
|
List of parameters such as expected returns, variances, and covariances necessary to determine the optimal risky portfolio.
|
|
|
Insurance principle
|
The law of averages. The average outcome for many independent trials of an experiment will approach the expected value of the experiment.
|
|
|
Market or systematic risk, firm-specific risk
|
Market risk is risk attributable to common macroeconomic factors. Firmspecifi c risk reflects risk peculiar to an individual firm that is independent of market risk.
|
|
|
Minimum-variance frontier
|
Graph of the lowest possible portfolio variance that is attainable for a given portfolio expected return.
|
|
|
Minimum-variance portfolio
|
The portfolio of risky assets with lowest variance.
|
|
|
Nondiversifiable risk
|
See systematic risk.
|
|
|
Nonsystematic risk
|
Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also called unique risk or diversifiable risk. Systematic risk refers to risk factors common to the entire economy.
|
|
|
Optimal risky portfolio
|
An investor's best combination of risky assets to be mixed with safe assets to form the complete portfolio.
|
|
|
Portfolio opportunity set
|
The expected return-standard deviation pairs of all portfolios that can be constructed from a given set of assets.
|
|
|
Reward-to-variability ratio
|
Ratio of a portfolio's risk premium to its standard deviation.
|
|
|
Separation property
|
The property that portfolio choice can be separated into two independent tasks: (1) determination of the optimal risky portfolio, which is a purely technical problem, and (2) the personal choice of the best mix of the risky portfolio and the risk-free asset.
|
|
|
Systematic risk
|
Risk factors common to the whole economy, nondiversifiable risk; also called market risk.
|
|
|
Unique risk
|
See diversifiable risk.
|
