Zero Beta portfolio having, trouble, someone

suxiaoxiao

I am having trouble understanding the concept of 'zero beta portfolio'. Can someone help?

mnieman

Cool...I didn't know you already passed, congrats!

ishfaque

CFAMaven
Thanks a lot.
Just don't want to brag about my background, I'd skip that. Passed level I some time ago. Have some downtime temporarily, so just try to help you guys out, like many other members who also have passed level I and work tirelessly to answer your questions in this forum without any selfish motives.

Concerning, scanned version of 2010 curriculum: can't say that either :-).
Sorry.

ramzes

Hes L2 candidate I think lol

dece2011

It has nothing to do with arbitrage in this context. The concept of zero-beta portfolio is a substitute in situations where you don't have a risk free asset to derive at the SML line. E.g., investors in developing countries where gov bonds are as risky as corp bonds, thus no natural risk-free asset. Arbitrage fund can be a substitute for riskfree theoretically, I think, though it is hardly any arbitrage fund is risk-free in its real nature since it is hard to have absolute zero beta (in addition to its nonsystematic risk).

In other context, a zero-beta asset can mean arbitrage fund, long-short fund, whatever assets which do not vary with market portfolio.

waldziuchna

You seem to be really well prepared elfca....if you don't mind me asking: what is your educational / work background...

Also....how did you get a scanned version of 2010 curriculum ?

agulani

Ok on that page in the CFA book it says that we assume the zero beta asset to have a higher return than the RF asset, which makes that intercept higher, and the line flatter.

chetan86

Well, still have not found the text (a bit slow today :-)), but what you quote does not contradict what I mentioned.
IF we assume zero beta asset to have a higher return (does not have to be, if you put your money under the mattress, its real return is below zero), then the intercept is higher since the intercept is the return of the zero-beta portfolio. Since the intercept is higher, it makes the line flatter.

JoeyDVivre

Yes u did, page 269 in the CFA book sir!

johnnyBuz

What would be an example of a zero beta asset with a return > RF?

- Robert