Active v.Passive Management CAPM implies that,on average,the performances of active portfolio managers is equal to that of passive managers employing just the market portfolio and the risk-free security Diligent managers do outperform passive managers,but only to the degree that their diligence is rewarded THE COURSE OF FINANCE 2017 SPRING SJTU 11
Active v. Passive Management CAPM implies that, on average, the performances of active portfolio managers is equal to that of passive managers employing just the market portfolio and the risk-free security Diligent managers do outperform passive managers, but only to the degree that their diligence is rewarded THE COURSE OF FINANCE 2017 SPRING SJTU 11
Reward Only for Market Risk The risk premium on any individual security is proportional only to its contribution to the risk of the market portfolio,and does not depend on its stand-alone risk Investors are rewarded only for bearing market risk THE COURSE OF FINANCE 2017 SPRING SJTU 12
Reward Only for Market Risk The risk premium on any individual security is proportional only to its contribution to the risk of the market portfolio, and does not depend on its stand-alone risk Investors are rewarded only for bearing market risk THE COURSE OF FINANCE 2017 SPRING SJTU 12
13.3 Beta and Risk Premiums on Individual Securities The measure of a security's systematic risk is its beta,B B tells you how much the security's rate of return changes when the return on the market portfolio changes THE COURSE OF FINANCE 2017 SPRING SJTU 13
13.3 Beta and Risk Premiums on Individual Securities The measure of a security’s systematic risk is its beta, b b tells you how much the security’s rate of return changes when the return on the market portfolio changes THE COURSE OF FINANCE 2017 SPRING SJTU 13
Comment:B 1 A security with a B 1 on average rises and falls with the market a 10%(say)unexpected rise (fall)in the market return premium will,on average, result in a 10%rise (fall)in the security's return premium THE COURSE OF FINANCE 2017 SPRING SJTU 14
Comment: b = 1 A security with a b = 1 on average rises and falls with the market a 10% (say) unexpected rise (fall) in the market return premium will, on average, result in a 10% rise (fall) in the security’s return premium THE COURSE OF FINANCE 2017 SPRING SJTU 14