文档介绍：Modern Portfolio Theory The Capital Asset Pricing Model
By Ding zhaoyong
Main Contents
The CAPM’s Assumptions
Market equilibrium
The Capital Market Line (CML)
The Security Market Line (SML)
The market model
The Security Characteristic Line (SCL)
The Capital Allocation Line (CAL)
How An Investor Makes Investment Decision
First, identify his or her efficient frontier
Estimate the expected returns and variances for all securities under consideration.
Estimate all the covariances among assets.
Determine the riskfree rate
Determine the tangency portfolio
Consequently, the efficient set is linear.
How An Investor Makes Investment Decision
Second, Identify his or her indifference curve.
Test his or her preference on risk-return and risk tolerance.
Finally, identify his or her optimal portfolio
Let the indifference curve touches but does not intersect the efficient set.
How An Investor Makes Investment Decision
The problem is how the investor evaluate the expected returns and risks when they make investment decisions.
We hereafter introduce some theories or models about how the value of an asset is determined or priced.
The Capital Asset Pricing Model (CAPM)
The Factor Models (FM)
The Arbitrary Pricing Theory (APT)
The Assumptions of CAPM
Investors evaluate portfolios by looking at the expected returns and standard deviations of the portfolios over a one-period horizon.
Investors are never satiated, so when given a choice between two otherwise identical portfolios, they will choose the one with the higher expected return.
Investors are risk-averse, so when given a choice between two otherwise identical portfolios,they will choose the one with the lower standard deviation.
The Assumptions of CAPM
Individual assets are infinitely divisible, meaning that an investor can by a fraction of a share if he or she so desires.
There is a riskfree rate at which an investor may either lend or borrow money.
Taxes and transaction costs are irrelevant.
All investors have the