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1、DOMESTICandINTERNATIONALPORTFOLIOMANAGEMENT(BEAM036)CapitalMarketTheoryandPortfolioManagement—TheCapitalAssetPricingModelandIndexModelsLearningOutcomes:Afterthissessionyoushouldbeableto1)Discusstheassumptionsofthecapitalmarkettheory,explainhowthepresenceofarisk-freeassetchangestheportfoliopossibi
2、litiesrelativetotheMarkowitzefficientfrontier,anddescribethemarketportfolioandtheroleitplaysintheformationofthecapitalmarketline(CML);2)Discussthesecuritymarketline(SML)andhowitdiffersfromtheCML,calculatethebetaofariskyasset,andcalculateandinterpret,basedontheSML,theexpectedreturnforanasset;deter
3、minewhethertheassetisundervalued,overvalued,orproperlyvalued;andoutlinetheappropriatetradingstrategy;3)EvaluatetheeffectontheSMLofrelaxingeachofitsmainunderlyingassumptions;4)DiscussthestepsandtheapproachoftheTreynor-Blackmodelforsecurityselection;5)Describehowthecompositionoftheactiveportfolioch
4、angeswhenshortpositionsareprohibitedandwhenthereareimperfectforecastsofalphavalues.6)DiscusshowtheIndexModelcanhelpsimplifytheCapitalAssetPricingModelframework;7)Distinguishbetweensystematicandunsystematicrisk;8)Explaintheproblemswhenestimatingindividualassetbetasandportfoliobetasovertime,anddisc
5、usssystematicwaystohelppredictbetas.Reading:thReilly,F.K.,andK.C.Brown,2006,InvestmentAnalysisandPortfolioManagement,8ed.,Chapter8.HomeworkthReilly,F.K.,andK.C.Brown,2006,InvestmentAnalysisandPortfolioManagement,8ed.,p263-267.Questions:1,5,15.Problems:14,15.TheCapitalAssetPricingModelTheaimofasse
6、tpricingtheoryisto“value”assets,bothindividualandportfoliosofassets.BelowwereviewthewidelyusedCapitalAssetPricingModel.ThisbuildsontheworkofMarkowitzandleadstoaquantitativepredictionaboutwhat“premium”weshouldreceiveintheformofextrareturnfortakingrisk.Italsotellsushowriskshouldbemeasuredbycovarian
7、ce.I.OverviewTheCAPMstartsfromtheviewthatallinvestorschoosemean-varianceefficientportfolios.Allinvestorsthinktheyarefacingthesameefficientfrontier.Thereisassumedtobearisk-freeasset.•Thereisoneuniqueriskyportfoliowhichc
