2181 - Chapter 9 - Key terms

Front

Homogeneous Expectations

Back

The assumption that all investors use the same expected returns and covariance matrix of security returns as inputs in security analysis.

Front

Market Portfolio

Back

One in which each security is held in proportion to its market value.

Front

Mutual Fund Theorem

Back

A result associated with the CAPM, asserting that investors will choose to invest their entire risky portfolio in a market-index mutual fund.

Front

Market Price of Risk

Back

A measure of the extra return, or risk premium, that investors demand to bear risk; the reward-to-risk ratio of the market portfolio.

Front

Beta

Back

The measure of the systematic risk of a security. The tendency of a security’s returns to respond to swings in the broad market.

Front

Expected Return–Beta Relationship

Back

Implication of the CAPM that security risk premiums (expected excess returns) will be proportional to beta.

Front

Security Market Line (SML)

Back

Graphical representation of the expected return–beta relationship of the CAPM.

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Alpha

Back

The abnormal rate of return on a security in excess of what would be predicted by an equilibrium model like CAPM or APT.

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Zero-Beta Portfolio

Back

The minimum-variance portfolio is uncorrelated with a chosen efficient portfolio.

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Liquidity

Back

The speed and ease with which an asset can be bought or sold at or near its intrinsic value.