Week 7 - Financial Markets: Stock Market and Capital Asset Pricing Model (CAPM) and Introduction to Systemic Risk Flashcards
1
Q
A
2
Q
Stock
A
Represents the ownership of fraction of issuing corporation
3
Q
CAPM Assumptions
A
- Investors are risk averse
-investors care only about return and risk
4
Q
CAPM Adding Assumptions
A
-capital markets are perfect
- all investors have same investment opportunity
- all investors estimate same features of asset
5
Q
CAPM applications
A
Obtains expected returns as long as:
- Risk free rate
- Expected return on market portfolio
- Beta of the asset
6
Q
Non Systematic Risks
A
Include risks that are specific to a company or industry
7
Q
Systematic risks
A
Affect overall stock markets
8
Q
CAPM
A
Beta calculates return of an investment and measures risks in relation to overall market
9
Q
Types of Beta
A
-B > 1 = aggressive shares
- B < 1 defensive
- B = 1 neutral
10
Q
Systemic Risk
A
Risk of entire financial system collapsing
11
Q
6 types systemic risk
A
- Common exposure to bubbles
- Liquidity provision
- Multiple equilibrium
- Contagion
- Sovereign default
- Currency mismatches
12
Q
A
