contemporary investments: chapter 19 chapter 19 extensions of capital asset pricing theory what is...
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![Page 1: Contemporary Investments: Chapter 19 Chapter 19 EXTENSIONS OF CAPITAL ASSET PRICING THEORY What is the zero-beta portfolio model? What are some results](https://reader030.vdocuments.mx/reader030/viewer/2022032521/56649d595503460f94a39d89/html5/thumbnails/1.jpg)
Chapter 19 EXTENSIONS OF CAPITAL ASSET
PRICING THEORY
• What is the zero-beta portfolio model?
• What are some results of empirical tests of the capital asset pricing model?
• What is Roll’s critique of the capital asset pricing model?
• What is the arbitrage pricing theory?
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Modifications of the CAPM
• Zero-Beta Portfolio.
• Zero-Beta Portfolio Model.
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Figure 19.1 – Zero-Beta Portfolio Model
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Figure 19.2 – Risk/Return Relationship for Zero-Beta Portfolio Model
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Empirical tests and critique of the CAPM
• Empirical tests– Joint hypothesis testing– Procedure of empirical tests– Empirical results
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Empirical tests and critique of the CAPM-Cont.
• Critique of the CAPM– Limits on tests– Linear risk/return relationship–Market portfolio composition– Range of SMLs–Market efficiency effects– Conflicts between proxies
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Figure 19.3 – Empirical Findings for the CAPM
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Figure 19.4 – Empirical Findings for the CAPM: Apr 1957-Dec 1965
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Figure 19.5 – Different Well-Diversified Portfolios and Their Corresponding SMLs
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Arbitrage Pricing Theory
• Concept of Arbitrage
• Single-Factor APT– Single-factor APT for a well-diversified
portfolio– Example of Exhibit 19.6
• Development of the single-factor APT
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Arbitrage Pricing Theory – Cont.
• Differences between the single-factor APT and the CAPM
• APT with multiple factors– Two-factor APT– N-factor APT
• Final synopsis of APT
• Implications for Investors
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Figure 19.6 – Arbitraging Portfolio K Using Portfolio CD