投资学英文课件chap013.ppt
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投资学
1-1
Chapter 1
The Investment Environment
McGraw-Hill/Irwin
1-2
Chapter Overview
examine the differences between financial assets and real assets.
proceed to the three broad sectors of financial environment:
McGraw-Hill/Irwin
1-5
Investments & Financial Assets
Real Assets
- Assets used to produce goods and services:
Assets used to produce goods and services. The material wealth of a society is determined ultimately by the productive capacity of its economy----the goods and service that ca be provided to its members. This productive capacity is a function of the real assets of the economy: the land ,buildings ,knowledge, and machines and workers. Together, physical and “human” assets generate the entire spectrum of output produced and
Chapter 1
The Investment Environment
McGraw-Hill/Irwin
1-2
Chapter Overview
examine the differences between financial assets and real assets.
proceed to the three broad sectors of financial environment:
McGraw-Hill/Irwin
1-5
Investments & Financial Assets
Real Assets
- Assets used to produce goods and services:
Assets used to produce goods and services. The material wealth of a society is determined ultimately by the productive capacity of its economy----the goods and service that ca be provided to its members. This productive capacity is a function of the real assets of the economy: the land ,buildings ,knowledge, and machines and workers. Together, physical and “human” assets generate the entire spectrum of output produced and
投资学英文课件chap011.ppt
CHAPTER 11
The Efficient Market Hypothesis
McGraw-Hill/Irwin
INVESTMENTS | BODIE, KANE, MARCUS
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
– Success depends on a sluggish response of stock prices to fundamental supply-and-demand factors.
– Weak form efficiency • Relative strength • Resistance levels
INVESTMENTS | BODIE, KANE, MARCUS
11-7
EMH and Competition
• Information: The most precious commodity on Wall Street – Strong competition assures prices reflect information. – Information-gathering is motivated by desire for higher investment returns. – The marginal return on research activity may be so small that only managers of the largest portfolios will find them worth pursuing.
11-5
Figure 11.1 Cumulative Abnormal Returns Before Takeover Attempts: Target Companies
The Efficient Market Hypothesis
McGraw-Hill/Irwin
INVESTMENTS | BODIE, KANE, MARCUS
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
– Success depends on a sluggish response of stock prices to fundamental supply-and-demand factors.
– Weak form efficiency • Relative strength • Resistance levels
INVESTMENTS | BODIE, KANE, MARCUS
11-7
EMH and Competition
• Information: The most precious commodity on Wall Street – Strong competition assures prices reflect information. – Information-gathering is motivated by desire for higher investment returns. – The marginal return on research activity may be so small that only managers of the largest portfolios will find them worth pursuing.
11-5
Figure 11.1 Cumulative Abnormal Returns Before Takeover Attempts: Target Companies
投资学英文课件chap013.ppt
• Jagannathan and Wang study shows two important deficiencies in tests of the single-index model:
Single Factor Test Results
Return %
CAPM
Estimated SML
Beta
INVESTMENTS | BODIE, KANE, MARCUS
Roll’s Criticism
• The only testable hypothesis is whether the market portfolio is mean-variance efficient.
2. Expected rates of return are not affected by nonsystematic risk.
INVESTMENTS | BODIE, KANE, MARCUS
Human Capital and Cyclical Variations in Asset Betas
• Benchmark error due to proxy for M
INVESTMENTS | BODIE, KANE, MARCUS
Measurement Error in Beta
• Problem: If beta is measured with error, then the slope coefficient of the regression equation will be biased downward and the intercept biased upward.
CAPM testing one of the factors.
Single Factor Test Results
Return %
CAPM
Estimated SML
Beta
INVESTMENTS | BODIE, KANE, MARCUS
Roll’s Criticism
• The only testable hypothesis is whether the market portfolio is mean-variance efficient.
2. Expected rates of return are not affected by nonsystematic risk.
INVESTMENTS | BODIE, KANE, MARCUS
Human Capital and Cyclical Variations in Asset Betas
• Benchmark error due to proxy for M
INVESTMENTS | BODIE, KANE, MARCUS
Measurement Error in Beta
• Problem: If beta is measured with error, then the slope coefficient of the regression equation will be biased downward and the intercept biased upward.
CAPM testing one of the factors.
31_博迪《投资学》Chap001资料
• 货币市场上的债务型证券：期限短、流 动性强且风险小
• 货币市场上的固定收益型证券：长期证 券，这些证券有的违约风险较低相对比 较安全，有的风险相对较高。
INVESTMENTS | BODIE, KANE, MARCUS
1-5
普通股证券和衍生证券
• 普通股证券代表了证券持有者对公司的 权益或所有权.
INVESTMENTS | BODIE, KANE, MARCUS
1-17
住房融资的变化
传统方式
• 当地的储蓄机构为房主提 供抵押贷款
• 储蓄机构的主要资产: 长 期抵押贷款的组合
• 储蓄机构的主要负债: 储 户的存款
• “源于持有”
新兴方式
• 证券化: 房利美和房地美 购买抵押贷款并将它们捆 绑在一起组成资产池。
– 高级份额: 低风险, 最高评级
– 低级份额: 高风险, 低评级或垃圾评级
INVESTMENTS | BODIE, KANE, MARCUS
1-21
抵押贷款衍生工具
• 问题: 这种评级是错误的! 这种结构给高级 份额带来的风险远远高于预期。
INVESTMENTS | BODIE, KANE, MARCUS
• 抵押支持证券是指对相应 抵押贷款资产池的索取权。
• “源于分配”
INVESTMENTS | BODIE, KANE, MARCUS
1-18
图 1.4 抵押转递证券的现金流
INVESTMENTS | BODIE, KANE, MARCUS
1-19
住房融资的变化
• 房利美和房地美持有或担保符合条件的证 券化抵押贷款, 这些抵押贷款的风险很低且 被妥善记录.
• 由私营企业提供的以不符合条件的违约风 险高的次级贷款为支持的证券化产品.
• 货币市场上的固定收益型证券：长期证 券，这些证券有的违约风险较低相对比 较安全，有的风险相对较高。
INVESTMENTS | BODIE, KANE, MARCUS
1-5
普通股证券和衍生证券
• 普通股证券代表了证券持有者对公司的 权益或所有权.
INVESTMENTS | BODIE, KANE, MARCUS
1-17
住房融资的变化
传统方式
• 当地的储蓄机构为房主提 供抵押贷款
• 储蓄机构的主要资产: 长 期抵押贷款的组合
• 储蓄机构的主要负债: 储 户的存款
• “源于持有”
新兴方式
• 证券化: 房利美和房地美 购买抵押贷款并将它们捆 绑在一起组成资产池。
– 高级份额: 低风险, 最高评级
– 低级份额: 高风险, 低评级或垃圾评级
INVESTMENTS | BODIE, KANE, MARCUS
1-21
抵押贷款衍生工具
• 问题: 这种评级是错误的! 这种结构给高级 份额带来的风险远远高于预期。
INVESTMENTS | BODIE, KANE, MARCUS
• 抵押支持证券是指对相应 抵押贷款资产池的索取权。
• “源于分配”
INVESTMENTS | BODIE, KANE, MARCUS
1-18
图 1.4 抵押转递证券的现金流
INVESTMENTS | BODIE, KANE, MARCUS
1-19
住房融资的变化
• 房利美和房地美持有或担保符合条件的证 券化抵押贷款, 这些抵押贷款的风险很低且 被妥善记录.
• 由私营企业提供的以不符合条件的违约风 险高的次级贷款为支持的证券化产品.
投资学全英课件
10.1 Multifactor models: an overview 10.2 Arbitrage pricing theory 10.3 Individual assets and the APT 10.4 A multifactor APT 10.5 Where should we look for factors?
10.1 Multifactor models（多因 素模 型）: an overview
The index model decomposes stock variability into market risk and firm-specific risk. In the index model, the return on the market portfolio summarized the broad impact of macro factors. Sometimes, however, rather than using a market proxy, it is more useful to focus directly on the ultimate sources of risk. That is to measure one‟s exposures to particular sources of uncertainty. Factor models allow us to describe and quantify the different factors that affect the rate of return on a security.
However, stocks actually differ in their betas relative to the various macroeconoic factors.
《投资学》经典课件(英文) (1)
What is investment？
• Your idea about the investmentபைடு நூலகம் • More money • Higher income • Etc.
The definition
• The current commitment of money or other resources in the expectation of reaping future benefits
Course Objective
• Analytical ability: modeling skills that are important
in making investment decisions
• Quantitative skills: developing problem solving
Investment
Money, wealth, stock, bond, capital ect.
Course Mechanics
• Class participation：50% • Final Exam：50%
Course materials： • Textbook：Investment Bodie, Kane and Marcus 9th edition • Additional materials, articles
• Investment science – mathematics
Why investment?
• You idea • Potential gain
• The gold price
• Uncertainty of the future payments and income, smooth your income and consumption
现代投资学讲义(英文版)PPT(72张)
What About Inflation?
$1 in 1926 could buy much more than $1 in 2002
Consumer prices increased over this period about ten-fold
How much does inflation affect our wealth accumulations?
Iran Tunisia Thailand Jamaica Jordan Trinidad-Tobago Iceland Bahrain Mauritius Botsw ana Ghana Sw aziland
China Slovak Namibia Egypt Zambia Malaw i
Malta Tanzania
Portfolio of long-term Treasury bonds?
Assume that the dividends and the interest payments are reinvested in the asset
Wealth Accumulation of Stocks and Bonds (1926-2002)
Introduction
An intermediate investment course Emphasizes portfolios Security Markets Investment analysis and management
Quiz Q1
假设你正在考虑投资于两只股票。通过一定的分析之后，你认为 未来一年的经济会呈现健康或者不健康两种可能的状态。这两种 情况发生的可能性相同（50%）。而两只股票在两种经济状态下 的回报率见下表：
Chap013博迪,凯恩,马库斯《投资学》课件
13-3
Tests of the CAPM
Tests of the expectrst Pass Regression
– Estimate beta, average risk premiums and unsystematic risk
13-2
The Index Model and the Single-Factor APT
• Expected Return-Beta Relationship
E(ri ) rf i E(rM rf
• Estimating the SCL
rit rft i bi (rMt rft ) eit
Overview of Investigation
• Tests of the single factor CAPM or APT Model
• Tests of the Multifactor APT Model – Results are difficult to interpret
• Studies on volatility of returns over time
• CAPM is not testable unless we know the exact composition of the true market portfolio and use it in the tests
• Benchmark error
13-6
Measurement Error in Beta
13-12
Tests of the Multifactor Model
• Chen, Roll and Ross 1986 Study Factors Growth rate in industrial production Changes in expected inflation Unexpected inflation Unexpected Changes in risk premiums on
Tests of the CAPM
Tests of the expectrst Pass Regression
– Estimate beta, average risk premiums and unsystematic risk
13-2
The Index Model and the Single-Factor APT
• Expected Return-Beta Relationship
E(ri ) rf i E(rM rf
• Estimating the SCL
rit rft i bi (rMt rft ) eit
Overview of Investigation
• Tests of the single factor CAPM or APT Model
• Tests of the Multifactor APT Model – Results are difficult to interpret
• Studies on volatility of returns over time
• CAPM is not testable unless we know the exact composition of the true market portfolio and use it in the tests
• Benchmark error
13-6
Measurement Error in Beta
13-12
Tests of the Multifactor Model
• Chen, Roll and Ross 1986 Study Factors Growth rate in industrial production Changes in expected inflation Unexpected inflation Unexpected Changes in risk premiums on
投资学investment课件 Chap012
– Tides: a primary direction or trend 基本趋势, – Waves: a secondary reaction or intermediate trend次级反应或中级趋势 – Ripples: tertiary or minor trends 第三或小趋势
12-5
B bearish signal Sell point HPQ
MA
A bullish signal Buy point
12-14
3. Support and Resistance Levels趋势线
• A support level支撑线(下限） is the lower limit to price fluctuations； • Resistance level阻力线(上限） is the higher limit to price fluctuations. • Why called support and resistance level?
12-17
Practical application
support price
resist price
250day MA
Break out at April 30 12-18
4.Candlesticks Chart（蜡烛线，K线，阴阳线）
• Candlesticks charts have been used in Japan to chart rice prices for several centuries, but only recently they have become popular in the US.
4 Candlesticks（K线）
12-3
12-5
B bearish signal Sell point HPQ
MA
A bullish signal Buy point
12-14
3. Support and Resistance Levels趋势线
• A support level支撑线(下限） is the lower limit to price fluctuations； • Resistance level阻力线(上限） is the higher limit to price fluctuations. • Why called support and resistance level?
12-17
Practical application
support price
resist price
250day MA
Break out at April 30 12-18
4.Candlesticks Chart（蜡烛线，K线，阴阳线）
• Candlesticks charts have been used in Japan to chart rice prices for several centuries, but only recently they have become popular in the US.
4 Candlesticks（K线）
12-3
投资学英文课件cha(3)
INVESTMENTS | BODIE, KANE, MARCUS
11-14
Event Studies
• Empirical financial research enables us to assess the impact of a particular event on a firm’s stock price.
• How do we explain random stock price changes?
INVESTMENTS | BODIE, KANE, MARCUS
11-3
Efficient Market Hypothesis (EMH)
• EMH says stock prices already reflect all available information
INVESTMENTS | BODIE, KANE, MARCUS
11-11
Active or Passive Management
• Active Management
– An expensive strategy – Suitable only for very large portfolios
INVESTMENTS | BODIE, KANE, MARCUS
11-16
Are Markets Efficient?
• Magnitude Issue – Only managers of large portfolios can earn enough trading profits to make the exploitation of minor mispricing worth the effort.
– Success depends on a sluggish response of stock prices to fundamental supply-and-demand factors.
11-14
Event Studies
• Empirical financial research enables us to assess the impact of a particular event on a firm’s stock price.
• How do we explain random stock price changes?
INVESTMENTS | BODIE, KANE, MARCUS
11-3
Efficient Market Hypothesis (EMH)
• EMH says stock prices already reflect all available information
INVESTMENTS | BODIE, KANE, MARCUS
11-11
Active or Passive Management
• Active Management
– An expensive strategy – Suitable only for very large portfolios
INVESTMENTS | BODIE, KANE, MARCUS
11-16
Are Markets Efficient?
• Magnitude Issue – Only managers of large portfolios can earn enough trading profits to make the exploitation of minor mispricing worth the effort.
– Success depends on a sluggish response of stock prices to fundamental supply-and-demand factors.
投资学 (3).ppt
The chapter discusses services provided by mutual funds and describes expenses and loads associated with investment in investment companies
Investment policies of different funds are described and sources of information on investment companies are identified
With renewed confidence in the stock market, mutual funds began to blossom. By the end of the 1960s, there were approximately 270 funds with $48 billion in assets. The first retail index fund, First Index Investment Trust, was formed in 1976 and headed by John Bogle, who conceptualized many of the key tenets of the industry in his 1951 senior thesis at Princeton University[3]. It is now called the Vanguard 500 Index Fund and is one of the world's largest mutual funds, with more than $100 billion in assets.
Investment policies of different funds are described and sources of information on investment companies are identified
With renewed confidence in the stock market, mutual funds began to blossom. By the end of the 1960s, there were approximately 270 funds with $48 billion in assets. The first retail index fund, First Index Investment Trust, was formed in 1976 and headed by John Bogle, who conceptualized many of the key tenets of the industry in his 1951 senior thesis at Princeton University[3]. It is now called the Vanguard 500 Index Fund and is one of the world's largest mutual funds, with more than $100 billion in assets.
《投资学》经典课件(英文) (13)
• Economic Indicators 经济指标 • Leading economic indicator 先行经济指标
• 经济数据日历：/
Industry Analysis
• Defining an Industry • NAICS codes 北美工业分类码
• olitic incidence
The Domestic Macro economy
• GDP • Unemployment rate • Inflation • Interest rate • Budget deficit • PMI
Demand and Supply Shocks
• Demand shock • Supply shock
Global economy
• Globalization: integration, infrostructure
• Why globalization analysis? • Much closer tie • Financial crisis • Crude oil • Exchange rate • Structure adjustment • The current situation?
Government Policy
• Fiscal policy • Monetary policy • Supply-Side Policies 供给方政策
Business Cycles
• Business Cycles • Peak • Trough 谷底 • Cyclical industries 周期性行业 • 钢铁、煤炭等等 • Defensive industries 防御性行业 • 食品、药品 • portfolio
《投资学》经典课件(英文) (3)
U.S. Securities Markets
• NASDAQ • Level 3 subscribers: firm, enter the price • Level 2 subscribers: brokerage firms, receive the price • Level 1 subscribers: receive only the inside quotes • NASDAQ Market Center,
How Firms Issue Securities
• Primary market（一级市场） • Secondary market（二级市场） • Initial public offerings（首次公开发行） • Seasoned equity offerings（再次发行） • (Bond) public offering（公开发行） • Private placement（私募）
Investment bank（投资银行）
• Raising financial capital by underwriting or acting as the client's agent in the issuance of securities (or both).
• Assist companies involved in mergers and acquisitions (M&A) and provide ancillary services such as market making, trading of derivatives and equity securities, and FICC services (fixed income instruments, currencies, and commodities)
投资学全英文ppt13
Copyright ©2014 Pearson Education, Inc. All rights reserved.
12-9
Closed-End Investment Companies
• Sell shares in the fund only at the initial offering
– “Diamonds” (DIA) track DJIA – “Spiders” (SPY) track S&P 500 – “Qubes (QQQ) track NASDAQ 100
Copyright ©2014 Pearson Education, Inc. All rights reserved.
12-4
Attractions of Mutual Funds
• Portfolio Diversification
– Owning numerous securities reduces risk
• Professional management • Ability to invest small amounts
12-11
Load and No-Load Funds
• Load Fund: a mutual fund that charges a commission when shares are bought
– Typically sold through a broker
• No-load Fund: a mutual fund that does not charge a commission when shares are bought
• More mutual funds in existence today than stocks listed on NYSE and AMEX combined
INVESTMENTS 投资学 (博迪BODIE, KANE, MARCUS)Chap03 How Securities are Traded PPT资料共40页
• Secondary Market – Investors trade previously issued securities among themselves
INVESTMENTS | BODIE, KANE, MAR3C-U2S
How Firms Issue Securities (Ctd.)
– Brokers search out buyers and sellers
INVESTMENTS | BODIE, KANE, MA3R-C1U0S
How Securities are Traded
Types of Markets:
• Dealer markets – Dealers have inventories of assets from which they buy and sell
INVESTMENTS | BODIE, KANE, MAR3C-U5S
Investment Banking
• Firm commitment – investment bank purchases securities from the issuing company and then resells them to the public.
INVESTMENTS | BODIE, KANE, MA3R-C1U6S
Table 3.1 Partial Requirements for Listing on NASDAQ Markets
INVESTMENTS | BODIE, KANE, MA3R-C1U7S
New York Stock Exchange
• Stocks
– IPO – Seasoned offering
• Bonds
INVESTMENTS | BODIE, KANE, MAR3C-U2S
How Firms Issue Securities (Ctd.)
– Brokers search out buyers and sellers
INVESTMENTS | BODIE, KANE, MA3R-C1U0S
How Securities are Traded
Types of Markets:
• Dealer markets – Dealers have inventories of assets from which they buy and sell
INVESTMENTS | BODIE, KANE, MAR3C-U5S
Investment Banking
• Firm commitment – investment bank purchases securities from the issuing company and then resells them to the public.
INVESTMENTS | BODIE, KANE, MA3R-C1U6S
Table 3.1 Partial Requirements for Listing on NASDAQ Markets
INVESTMENTS | BODIE, KANE, MA3R-C1U7S
New York Stock Exchange
• Stocks
– IPO – Seasoned offering
• Bonds
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2. Betas are cyclical.
INVESTMENTS | BODIE, KANE, MARCUS
13-12
Table 13.2 Evaluation of Various CAPM Specifications
INVESTMENTS | BODIE, KANE, MARCUS
13-13
13-2
Overview of Investigation
• Return-beta relationships are widely used in actual financial practice.
• The CAPM predicts expected rates of
return on assets, relative to a market portfolio of all risky assets.
CHAPTER 13
Empirical Evidence on Security Returns
McGraw-Hill/Irwin
INVESTMENTS | BODIE, KANE, MARCUS
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
bonds • Unexpected changes in term premium on
bonds
INVESTMENTS | BODIE, KANE, MARCUS
13-16
Study Structure & Results
• Method: Two-stage regression with portfolios constructed by size based on market value of equity
• Significant factors: industrial production, risk premium on bonds and unanticipated inflation
• Market index returns were not statistically significant in the multifactor model
CAPM testing difficulties:
the S&P 500) represents one of the factors.
• Well diversified portfolios
are often substituted for
individual securities.
INVESTMENTS | BODIE, KANE, MARCUS
13-22
Behavioral Explanations for Value Premium
• “Glamour firms” are characterized by recent good performance, high prices, and lower book-to-market ratios.
2. Expected rates of return are not affected by nonsystematic risk.
INVESTMENTS | BODIE, KANE, MARCUS
13-11
Human Capital and Cyclical Variations in Asset Betas
• CAPM and APT do not tell us!
INVESTMENTS | BODIE, KANE, MARCUS
13-15
Tests of the Multifactor Model
Chen, Roll and Ross 1986 Study Factors • Growth rate in industrial production • Changes in expected inflation • Unexpected inflation • Unexpected changes in risk premiums on
INVESTMENTS | BODIE, KANE, MARCUS
13-5
Tests of the CAPM
Tests of the expected return beta relationship:
• First Pass Regression – Estimate beta, average risk premiums and nonsystematic risk
• Solution: Replace individual assets with a set of portfolios with small nonsystematic components and widely spaced betas.
– Fama and MacBeth
INVESTMENTS | BODIE, KANE, MARCUS
• High book to market firms experience higher returns (value style).
• Returns are explained by size, book to market and by beta.
INVESTMENTS | BODIE, KANE, MARCUS
• Jagannathan and Wang study shows two important deficiencies in tests of the single-index model:
1. Many assets are not traded, notably, human capital. A human capital factor may be important in explaining returns.
• Benchmark error due to proxy for M
INVESTMENTS | BODIE, KANE, MARCUS
13-8
Measurement Error in Beta
• Problem: If beta is measured with error, then the slope coefficient of the regression equation will be biased downward and the intercept biased upward.
INVESTMENTS | BODIE, KANE, MARCUS
13-17
Fama-French Three Factor Model
• Size and book-to-market ratios explain returns on securities.
• Smaller firms experience higher returns.
Petkova and Zhang
• When the economy is expanding, value beta < growth beta
• When the economy is in recession, value beta > growth beta
INVESTMENTS | BODIE, KANE, MARCUS
13-20
Figure 13.1 Difference in Return to Factor Portfolios
INVESTMENTS | BODIE, KANE, MARCUS
13-21
Figure 13.2 HML Beta in Different Economic States
INVESTMENTS | BODIE, KANE, MARCUS
Table 13.3 Determinants of Stockholdings
INVESTMENTS | BODIE, KANE, MARCUS
13-14
Tests of the Multifactor Model
• Which factors or sources of risk should have risk premiums?
• Second Pass – Use estimates from the first pass to see if model is supported by the data
• SML slope is “too flat” and intercept is “too high”.
INVESTMENTS | BODIE, KANE, MARCUS
• Sample betas conform to the SML relationship because all samples contain an infinite number of ex post meanvariance efficient portfolios.
• CAPM is not testable unless we know the exact composition of the true market portfolio and use it in the tests.
13-18
Interpretation of and value are priced risk factors, consistent with APT.
• Alternatively, premiums could be due to investor irrationality or behavioral biases.
13-4
The Index Model and the Single-Factor APT
• Expected Return-Beta Relationship
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Table 13.2 Evaluation of Various CAPM Specifications
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Overview of Investigation
• Return-beta relationships are widely used in actual financial practice.
• The CAPM predicts expected rates of
return on assets, relative to a market portfolio of all risky assets.
CHAPTER 13
Empirical Evidence on Security Returns
McGraw-Hill/Irwin
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Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
bonds • Unexpected changes in term premium on
bonds
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Study Structure & Results
• Method: Two-stage regression with portfolios constructed by size based on market value of equity
• Significant factors: industrial production, risk premium on bonds and unanticipated inflation
• Market index returns were not statistically significant in the multifactor model
CAPM testing difficulties:
the S&P 500) represents one of the factors.
• Well diversified portfolios
are often substituted for
individual securities.
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Behavioral Explanations for Value Premium
• “Glamour firms” are characterized by recent good performance, high prices, and lower book-to-market ratios.
2. Expected rates of return are not affected by nonsystematic risk.
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Human Capital and Cyclical Variations in Asset Betas
• CAPM and APT do not tell us!
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Tests of the Multifactor Model
Chen, Roll and Ross 1986 Study Factors • Growth rate in industrial production • Changes in expected inflation • Unexpected inflation • Unexpected changes in risk premiums on
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Tests of the CAPM
Tests of the expected return beta relationship:
• First Pass Regression – Estimate beta, average risk premiums and nonsystematic risk
• Solution: Replace individual assets with a set of portfolios with small nonsystematic components and widely spaced betas.
– Fama and MacBeth
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• High book to market firms experience higher returns (value style).
• Returns are explained by size, book to market and by beta.
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• Jagannathan and Wang study shows two important deficiencies in tests of the single-index model:
1. Many assets are not traded, notably, human capital. A human capital factor may be important in explaining returns.
• Benchmark error due to proxy for M
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Measurement Error in Beta
• Problem: If beta is measured with error, then the slope coefficient of the regression equation will be biased downward and the intercept biased upward.
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Fama-French Three Factor Model
• Size and book-to-market ratios explain returns on securities.
• Smaller firms experience higher returns.
Petkova and Zhang
• When the economy is expanding, value beta < growth beta
• When the economy is in recession, value beta > growth beta
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Figure 13.1 Difference in Return to Factor Portfolios
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Figure 13.2 HML Beta in Different Economic States
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Table 13.3 Determinants of Stockholdings
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Tests of the Multifactor Model
• Which factors or sources of risk should have risk premiums?
• Second Pass – Use estimates from the first pass to see if model is supported by the data
• SML slope is “too flat” and intercept is “too high”.
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• Sample betas conform to the SML relationship because all samples contain an infinite number of ex post meanvariance efficient portfolios.
• CAPM is not testable unless we know the exact composition of the true market portfolio and use it in the tests.
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Interpretation of and value are priced risk factors, consistent with APT.
• Alternatively, premiums could be due to investor irrationality or behavioral biases.
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The Index Model and the Single-Factor APT
• Expected Return-Beta Relationship