Capital Asset Pricing Model Flashcards
1
Q
Recall the CAPM equation.
A
2
Q
Recall defensive and aggresive assets.
A
3
Q
Differ between CML and SML.
A
4
Q
How can we know whether securities overpriced or underpriced through using the SML?
A
5
Q
Compare the CML and CAPM equation.
A
6
Q
How to calculate the beta of the portfolio?
A
7
Q
How does the CAPM compares to realized returns? How is it tested?
A
Estimates of beta are unreliable for individual securities so we group securities into portfolios and perform tests on tehse protfolios. Th ebeta of each portfolio are calculated over the “estimation period”. The return of each portfolio us then measured through the subsequent “test period”. If teh CAPM is calid, returns in the test period should be explained by the betas from the estimation period.
