Video unit 20 Flashcards
strategic asset allocation
setting up portfolio for long term
lower investor costs
passive
use index funds and index etfs
tactical asset allocation
short term can generate alpha active try to buy undervalued higher investment costs
market cap breackdown
small 300- 2 bill
mid -2 to 10 bill
large 10 bill plus
barbell strategy
short and long term bonds
bullet
all bonds mature same date- target
laddering
maturity latter
keep rolling over every year
is barbell,bullet laddering, active or passive
active
capital market theory components
- investors can borrow at RFR
- all investors rational. use expected return
- time horizon equal for all investors
- no transaction costs or personal income taxes
- no inflation
- efficient markets
Modern portfolio theory
diversify with negative correlation
feasible set
all portfolios that can be constructed for given set of stock
efficient portfolio
most return for least risk
least risk for given amount of risk
efficient set or efficient frontier
collection of efficient portfolios
optimal portfolio is where
where efficient set(portfolio) and investors risk tolerance meet
CAPM(capital asset pricing model)
used to determine required rate of return must be compensated for time value must use risk free rate must be compensated for systematic risk compare beta to market return
expected return
RFR +(MR-RFR)* beta
efficient market hypothesis says
all investors have same access to same info, can’t beat market
forms of efficient hypotheses
week- information everyone knows is price and volume
semi strong-financial statements and economic info
strong- all public and private info
what will/ won’t work for efficient hypthesis
weak-
will-fundemental and insder
won’t -technical
semi-
will- insider
won’t- fundamental and technical
strong
will-random walk
won’t- technical and fundamental
dollar cost averaging
same amount of money at same interval
lower end vs higher of effiecient frontier
the lower end of the efficient frontier includes low-risk and low-return portfolios.
The higher end includes high-risk and high-return portfolios
Under the CAPM, securities are priced based on
their systematic risk only, because this risk cannot be eliminated through diversification.
