Finance
Jehlifisch Universität, Herbstsemester 2013
Jehlifisch Universität, Herbstsemester 2013
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Cartes-fiches
The Beta is the relative systematic risk.
A risk premium is the difference between a security's return and the Treasury bill return.
The standard statistical measures of the variability of stock returns are beta and covariance.
Diversification reduces the risk of a portfolio because the prices of different securities do not move exactly together.
The portfolio risk that cannot be eliminated by diversification is called specific risk.
The average beta of all stocks in the market is zero.
A portfolio with a beta of one offers an expected return equal to the market risk premium.
Stocks with high standard deviations will necessarily also have high betas.
A stock having a covariance with the market that is higher than the variance of the market will always have a beta above 1.0.
The variability of a well-diversified portfolio mostly reflects the contributions to risk from the standard deviations of the stocks within that portfolio.
The CAPM makes a statement about expected returns.
Since the normal distribution is skewed it can be described by only two moments (mean and variance).
An investor with a higher risk-appetite will earn higher returns on his portfolio than an investor that is more risk-averse.
Investors demand a higher expected return for stocks that respond very sensitively to changes in the capital market.
The CAPM relates realized returns of a stock to the systematic risk of the market.
The Sharpe Ratio defines the excess return per unit of systematic risk.
The short-run distribution of stocks is close to the normal distribution.
Assets with a perfectly positive correlation have a linear relationship between risk and return.
Stocks with a Beta below 1 are called aggressive stocks, because their Beta converges to 1.
Diversification cannot reduce portfolio risk if correlations across stock returns equal zero.
Assets with a Beta of zero are risk-free.
Two stocks can never have a positive correlation and a negative covariance.
The covariance between the returns on two stocks equals the correlation coefficient multiplied by the standard deviations of the two stocks.
The beta of a well-diversified portfolio is equal to the value weighted average beta of the securities included in the portfolio.
The CAPM states that a stock with a beta of zero will have an expected return of zero percent.
Stocks above the security market line are undervalued.
Short sale constraints can lead to upward price biases.
The Fama-French Model is an extension of the Carhart Model, since it adds a Momentum factor.
The three risk Factors of the Fama and French Model are market risk, momentum, and firm size.
Consumer goods companies are usually aggressive stocks.
Two assets with a perfectly negative correlation can never make up a portfolio that has a variance of zero but a positive return.
The CAPM assumes that information is not costly.
In a CAPM world, the factor loading on market risk is the only relevant risk sensitivity.
The random increments of a random walk are independent and identically distributed, therefore they must have a positive correlation.
The standard deviation of a random variable modeled with a random walk increases exponentially in t.
The expected value of a random variable modeled with random walk with a positive drift increases linearly in t.
The randomness of returns is a sign of irrational market behavior.
The randomness of returns is a sign of irrational market behavior.
In the semi-strong form of market efficiency, private information are reflected in the prices.
If there are no arbitrage opportunities, prices are equal to their value.
