2.7 - Benchmarking and Performance Attribution

Question 1

Ex-ante CAPM

Answer 1

• single factor asset pricing model

E(Ri) = Rf + β[E(Rm) - Rf]

E(Rm) - Rf = market risk premium
β= relative systematic risk

Question 2

Ex-ante Alpha

Answer 2

Ex-ante alpha = expected return -CAPM ex ante return

Question 3

Ex-post CAPM

Answer 3

Ri,t = Rf + β[E(Rm,t) - Rf] + ε

ε —-> ex post alpha, attributable to both skill and luck