assumptions necessary to derive the single-factor market model. 10．Joseph Capital Management is considering implementing a mean-variance optimization model as part of their portfolio management process, however, the firm’s investment committee is unsure whether the model should use historical estimates or market model estimates for the inputs to the model. Joseph’s Senior Portfolio Manager, Travis Palmer, puts together a memo to the committee contrasting the two methods of calculating inputs. The memo includes the following points: Point 1: Using the historical estimate is far simpler and involves fewer computations than the market model method. Point 2: The use of market model estimates implicitly assumes that the market itself is mean-variance efficient. Point 3: Both the use of market model estimates and historical estimates rely on historical data to some degree. Point 4: One of the problems with using market model estimates for estimating returns is that the market model implicitly assumes the market index is representative of the entire market. After reviewing Palmer’s memo, Joseph’s investment committee would be CORRECT to: A) agree with Points 2 and 3, but disagree with Point 1. B) agree with Points 1 and 4, but disagree with Point 3. C) agree with Point 4, but disagree with Points 1 and 3. D) agree with Point 3, but disagree with Points 2 and 4. The correct answer was A) The committee should disagree with Point 1. The use of historical estimates involves computing the covariance of between each stock in a portfolio with every other stock in the portfolio, while the use of the market model only relies on computing the covariance of each stock with the market index, resulting in fewer computations. The committee should agree with Points 2, 3, and 4. The market model regresses historical returns of a stock/portfolio with the corresponding returns of a market index and implicitly assumes that historical relationships are reflective of future relationships. The market model also implicitly assumes that the market itself is mean-variance efficient and that the index used for market returns is representative of the entire market. 11．The single-factor market model predicts that the systematic portion of the variance of an asset’s return is equal to the: A) square of the asset's beta. B) square of the asset's beta times the variance of the market portfolio. C) asset's beta. D) covariance between the asset's returns and the market returns. The correct answer was B) One of the predictions of the single-factor market model is that Var(Ri) = bi2sM2 + sei2. In other words, there are two components to the variance of the returns on asset i: a systematic component related to the asset’s beta (bi2sM2) and an unsystematic component related to firm-specific surprises (sei2). 12．The single-factor market model predicts that the covariance between two assets (asset i and asset j) is equal to: A) the beta of i times the beta of j. B) the beta of i times the beta of j times the variance of the market portfolio. C) the covariance of i with the market divided by the covariance of j with the market. D) the beta of i times the beta of j divided by the standard deviation of the market portfolio. The correct answer was B) One of the predictions of the single-factor market model is that Cov(Ri,Rj) = bibjsM2. In other words, the covariance between two assets is related to the betas of the two assets and the variance of the market portfolio. | 
发表于 2008-4-14 17:51
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