Term
Terms from Creation of Optimal Risky portfolio
s2(e)
aA
W* |
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Definition
s2(e) = Unique variance of individual stocks
aA = Average Alpha of riskyportfolio
W* = Adjusted Weight of risky portfolio such that beta is 1. Balance is in market portfolio. |
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Term
| Optimal Active Risky Portfolio idea |
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Definition
| Idea is to tilt the market portfolio toward stocks with postive alpha and away from negative alpha, while minimizing additional variance |
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Term
Single factor model ri
and implied covariance |
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Definition
ri = E(ri)+ßim +ei
Cov(ri,rj) = ßißjσm2 |
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Term
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Definition
ß*=2/3 * ß + 1/3 *1
since betas tend to regress towards 1 over time |
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