Fama Decomposition Flashcards
1
Q
Total return
A
Risk free rate + overall performance
2
Q
Return from risk (r2 - r)
A
Managers risk + Investors risk
3
Q
Return from selectivity (rp - r)
A
Diversification + net selectivity
4
Q
Investors risk
A
r1 - r
5
Q
Managers risk
A
r2 - r1
6
Q
Diversification
A
r3 - r2
7
Q
Net selectivity
A
rp - r3
8
Q
r2
A
Using beta for weightings of market returns and wight of risk free rate
9
Q
r1
A
clients target beta to use as weightings of market portfolio and risk free rate
10
Q
r3
A
Calculate overall beta using STD of portfolio/STD of market
use beta as weightings for market returns and risk free rate
