《投资分析与组合管理 Frank K. Reilly》ch08.pptVIP

Lecture Presentation Software to accompanyInvestment Analysis and Portfolio ManagementSeventh Editionby Frank K. Reilly Keith C. Brown Chapter 8– Multifactor Models of Risk and Return Questions to be answered: What is the arbitrage pricing theory APT and what are its similarities and differences relative to the CAPM? What are the major assumptions not required by the APT model compared to the CAPM? How do you test the APT by examining anomalies found with the CAPM? Chapter 8 - Multifactor Models of Risk and Return What are the empirical test results related to the APT? Why do some authors contend that the APT model is untestable? What are the concerns related to the multiple factors of the APT model? Chapter 8 - Multifactor Models of Risk and Return Arbitrage Pricing Theory APT CAPM is criticized because of the difficulties in selecting a proxy for the market portfolio as a benchmark An alternative pricing theory with fewer assumptions was developed: Arbitrage Pricing Theory Arbitrage Pricing Theory - APT Three major assumptions: 1. Capital markets are perfectly competitive 2. Investors always prefer more wealth to less wealth with certainty 3. The stochastic process generating asset returns can be expressed as a linear function of a set of K factors or indexes Assumptions of CAPMThat Were Not Required by APT APT does not assume A market portfolio that contains all risky assets, and is mean-variance efficient Normally distributed security returns Quadratic utility function Arbitrage Pricing Theory APT For i 1 to N where: return on asset i during a specified time period Arbitrage Pricing Theory APT For i 1 to N where: return on asset i during a specified time period expected return for asset i Arbitrage Pricing Theory APT For i 1 to N where: return on asset i during a specified time period expected return for asset i reaction in asset i’s returns to movements in a common factor Arbitrage Pricing Theory APT For i 1 to N where: retu