What Is Betting Against Beta And How Bab Linked From Capm? Essay

The goal of this paper is to explain why CCM’s aggressive program is a good alternative to any investor looking to diversify its portfolio. The paper will be divided into three distinct parts: the operational analysis, the quantitative analysis and a comparison against its peers (including the impact of CCM in a traditional portfolio).

This model helps demonstrate the relationship between expected return of a stock and undiversifiable risk. Undiversifiable risk is the risk of daily fluctuations and economic conditions. The formula for CAPM is: ke= RF +MRP* Beta Ke= Discount Rate Rf= Risk Free Rate MRP= Market Risk Premium Beta= Measure of volatility

CAPM results can be compared to the best expected rate of return that investor can possibly earn in other investments with similar risks, which is the cost of capital. Under the CAPM, the market portfolio is a well-diversified, efficient portfolio representing the non-diversifiable risk in the economy. Therefore, investments have similar risk if they have the same sensitivity to market risk, as measured by their beta with the market portfolio.

Harm reduction is a concept that refers to policies, programs, and practices that aim to reduce the harms associated with the use of psychoactive drugs in people unable or unwilling to stop (Syme, Browne, Varcoe, & Josewski, 2011). Methadone has been increasingly utilized as a means of addressing and reducing the health, social, and fiscal harms associated with opiate addiction (Kerr, Marsh, Li, Montaner, & Wood, 2005). During my clinical rotation at Rosthern Hospital, I learned that this small town rural hospital has a successful methadone program to treat opioid addiction. When a person thinks of small town Saskatchewan, their first though is not usually intravenous (IV) drug use, but after working at Rosthern Hospital for a few shifts, I began to realize the town and the surrounding communities may have an addictions problem. At the hospital, the doctors, nurses, pharmacists, and support staff have all decided to collaborated and developed a harm-reduction methadone program for their patients. Not only is this program successful because it addresses the needs of the community, but it is also controversial. Using Carper’s (1978) “Five Ways of Knowing” I examined the methadone program and its patients, the positive and negatives, as well as a patient’s own personal experience being in the methadone program.

The securities below the slope are overvalued stocks because for a given systematic risk the expectation is high . (Sharpe , 1964)

CAPM is a model that describes the relationship between risk and expected return, and the formula itself measures the expected return of the portfolio. Mathematically, when beta is higher, meaning the portfolio has more systematic risk (in comparison to the market portfolio), the formula yields a higher expected return for the portfolio (since it is multiplied by the risk premium and is added to the risk free interest rate). This makes sense because the portfolio needs to

For estimation of betas, the above equation was run for the period from Jan, 2003 to Dec, 2006. Based on the estimated betas we have divided the sample of 63 stocks into 10 portfolios each comprising of 6 stocks except portfolio no.1, 5 and 10 having seven stocks each. The first portfolio 1 has the 7 lowest beta stocks and the last portfolio 10 has the 7 highest beta stocks. The rationale for forming portfolios is to reduce measurement error in the betas.

It was the 2nd of July, 1964. President Lyndon B. Johnson had finally finished eighty-three days of arguing for his bill to pass. He was determined to finish what his predecessor had started before he met his death a year earlier; bringing justice to all, no matter what your gender was, what you believed in, or even what you looked like. This wondrous bill, this bill our former leaders have literally poured blood, sweat and tears into was finally becoming reality. This bill, known to us as the Civil Rights Act of 1964, as the Constitutional Rights Foundation put it, “banned racial discrimination in several areas, including hotels, restaurants, education, and other public accommodations. This landmark act also guaranteed equal job opportunities, fulfilling one major objective of the historic 1963 March

A substitution of risks that investors may undergo in order to move from overpriced shares in highly levered firms to those in unlevered firms by borrowing in personal accounts; corporate leverage through purchasing and financing options;

Even though there are flaws in the CAPM for empirical study, the approach of the linearity of expected return and risk is readily relevant. As Fama & French (2004:20) stated “… Markowitz’s portfolio model … is nevertheless a theoretical tour de force.” It could be seen that the study of this paper may possibly justify Fama & French’s study that stated the CAPM is insufficient in interpreting the expected return with respect to risk. This is due to the failure of considering the other market factors that would affect the stock price.

“The Benefits of diversification are clear. Portfolio theory has played a crucial role in explaining the relationship between risk and return where more than one investment is held. It also enables us to identify optimal and efficient portfolios.”

There are many different aspects of George Orwell’s Animal Farm that gives the book a lingering appeal. Animal Farm is about a farm being taken over by the overworked and mistreated animals. They come together to try to create a place where they are not slaves and where they can enjoy life. They want to create a place of paradise where they can be equal to humans. They planned for a while and eventually it followed through when the farmer had whipped the animals for stealing food after he forget to feed them. They were eventually rid of humans and their habits and rejoiced. They then created their own government and rules. They created a civilization with jobs, schools, government, etc. Each animal had a certain status, the pigs at the top

The relationship between beta and operating leverage has consequences for the firm's major strategic decisions regarding future direction. It may not be an easy task to determine the operating leverage especially when viewed from outside, this is because the fixed and variable costs are often aggregated in income statements. It is possible to obtain the approximate measure of the firm's operating leverage, however by looking at changes in operating income as a function of changes in sales.

To reduce a firm’s specific risk or residual risk a portfolio should have negative covariance or rather it should have no variance at all, for large portfolios however calculating variance requires greater and sophisticated computing power. As such, Index models greatly decrease the computations needed to calculate the optimum portfolio. The use of such Index models also eliminates illogical or rather absurd results. The Single Index model (SIM) and the Capital Asset Pricing Model (CAPM) are such models used to calculate the optimum portfolio.

In order to maximize a portfolio’s return, it is important to analyze risk and diversify securities, while adhering to the goals of an investor. Through analyzing the different classes of risk, one can match investments to an investor’s risk tolerance and return requirements. Even though some investments may present greater risk they are countered by a higher rate of return and vice versa, less risk corresponds to a lower return. Moreover, investment risk can be substantially reduced through diversification, which spreads a portfolio across different industries, businesses and investment options. The makeup of a diversified portfolio continually changes based on an investor’s time horizon and investment goals. In accordance with the Modern Portfolio Theory (MPT), one can maximize return while reducing risk, through assessing investments standard deviation and beta. When applied to the capital asset pricing model (CAPM) an investor can determine what the expected rate of return should be and if the risk is worth it. Therefore, by analyzing risk and diversifying investments one can maximize an investment growth, increasing a portfolios return.