Applying the CAPM to Performance Measurement
8 important questions on Applying the CAPM to Performance Measurement
What does the Treynor measure do?
Deriving a bit, you get the security market line (SML) as the beta should be 1 for the market portfolio.
Treynor helpt to see whether a portfolio is sufficiently rewarded, in comparison to systematic risk.THerefore particular useful for well-diversified portfolios.
Critics: Roll criticizes that a market portfolio is needed for the beta, but that such a market portfolio does not exist.
What is the relation between Treynor and Jensen?
What is the relation between Sharpe and Jensen?
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What is the relation between Treynor and Sharpe?
What extensions have been made to Jensen's measure?
Other generalisations have been made to get manager's value-added evaluation and market riming strategy. THe convenience of Jensen's Alpha is that it doesn't rely on the model chosen whether it is four-factor or CAPM, it is still about the alpha that remains.
What is the Sortino ratio?
Sortino = (Expected return - MAR) / wortel(1/t * sum of (Rp - MAR)^2.
For which Rp should be below MAR.
What is the actuarial approach?
RAR = R - (W-1)S. Average individual has W-2. This makes R-S. This W implies that the investor agrees to invest of the expected amount of gain is double the shortfall.
How about taking into account the management style?
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