威廉夏普投资学key for chap10.doc

1. The auto industrys earnings are highly cyclical. Therefore auto company stocks possess a high sensitivity (in a positive direction) to the trend in economic activity. Savings and loan companies (whose primary business is home loans) generally have large portfolios of fixed-rate loans. When interest rates rise (fall), their cost of funds rises (falls), while revenues remain relatively stable. As a result, their earnings fall (rise). Thus the stocks of these companies are often responsive (in a negative direction) to movements in real interest rates. For the real estate and air line, it is a negative signal. Electric utilities operate in regulatory environments. They may have trouble passing on cost increases to consumers, especially in the short run. Thus their stocks are sensitive (in a negative direction) to unexpected inflation. Crude oil producers and their stocks are sensitive (in a positive direction) to the level of oil prices. 2. In order to derive the curved Markowitz efficient set, the investor needs to estimate the expected returns, variances, and covariances for all assets. One can show that without a factor model, the investor must estimate (N2 + 3N)/2 parameters to derive the efficient set. On the other hand, based on the assumptions underlying a factor model, the common responsiveness of securities to the factor(s) eliminates the need to estimate directly the covariances between securities. These covariances are captured by the securities sensitivities to the factor(s) and the factor(s) variance(s). As a result the number of parameters that must be estimated to derive the efficient set with a factor model is significantly reduced. 4. Factor model relationships are based on two critical assumptions. The first is that the random error term and the factor are uncorrelated, meaning that the outcome of the factor has no bearing on the outcome of the random error term. The second assumption is that the random error terms of any two securitie