INVESTMENTS 投资学 （博迪BODIE, KANE, MARCUS）Chap006 Risk Aversion and Capital Allocation to Risky Assets.ppt

Passive Strategies: The Capital Market Line The passive strategy avoids any direct or indirect security analysis Supply and demand forces may make such a strategy a reasonable choice for many investors Passive Strategies: The Capital Market Line A natural candidate for a passively held risky asset would be a well-diversified portfolio of common stocks such as the SP 500. The capital market line (CML) is the capital allocation line formed from 1-month T-bills and a broad index of common stocks (e.g. the SP 500). Passive Strategies: The Capital Market Line The CML is given by a strategy that involves investment in two passive portfolios: virtually risk-free short-term T-bills (or a money market fund) a fund of common stocks that mimics a broad market index. Passive Strategies: The Capital Market Line From 1926 to 2009, the passive risky portfolio offered an average risk premium of 7.9% with a standard deviation of 20.8%, resulting in a reward-to-volatility ratio of .38. INVESTMENTS | BODIE, KANE, MARCUS INVESTMENTS | BODIE, KANE, MARCUS Copyright ? 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 6 Risk Aversion and Capital Allocation to Risky Assets Allocation to Risky Assets Investors will avoid risk unless there is a reward. The utility model gives the optimal allocation between a risky portfolio and a risk-free asset. Risk and Risk Aversion Speculation Taking considerable risk for a commensurate gain Parties have heterogeneous expectations Risk and Risk Aversion Gamble Bet or wager on an uncertain outcome for enjoyment Parties assign the same probabilities to the possible outcomes Risk Aversion and Utility Values Investors are willing to consider: risk-free assets speculative positions with positive risk premiums Portfolio attractiveness increases with expected return and decreases with risk. What happens when return increases with risk? Table 6.1 Available Risky Portfolios (Risk-free Rate = 5%) Eac