《现代资产组合理论和资本资产定价模型分析课件》由会员分享，可在线阅读，更多相关《现代资产组合理论和资本资产定价模型分析课件（54页珍藏版）》请在金锄头文库上搜索。
1、Modern Portfolio TheoryThe Factor Models and The Arbitrage Pricing TheoryChapter 8By Ding zhaoyongReturn-generating Processand Factor ModelsReturn-generating processIs a statistical model that describe how return on a security is produced.The task of identifying the Markowitz efficient set can be gr
2、eatly simplified by introducing this process.The market model is a kind of this process, and there are many others.Return-generating Processand Factor ModelsFactor modelsThese models assume that the return on a security is sensitive to the move-ments of various factors or indices.In attempting to ac
3、curately estimate expected returns, variances, and covariances for securities, multiple-factor models are potentially more useful than the market model.Return-generating Processand Factor ModelsImplicit in the construction of a factor model is the assumption that the returns on two securities will b
4、e correlated only through common reactions to one or more of the specified in the model. Any aspect of a securitys return unexplained by the factor model is uncorrelated with the unique elements of returns on other securities.Return-generating Processand Factor ModelsA factor model is a powerful too
5、l for portfolio management.It can supply the information needed to calculate expected returns, variances, and covariances for every security, which are the necessary conditions for determining the curved Markowitz efficient set.It can also be used to characterize a portfolios sensitivity to movement
6、 in the factors.Return-generating Processand Factor ModelsFactor models supply the necessary level of abstraction in calculating covariances.The problem of calculating covariances among securities rises exponentially as the number of securities analyzed increase.Practically, abstraction is an essent
7、ial step in identifying the Markowitz set. Return-generating Processand Factor ModelsFactor models provide investment managers with a framework to identify important factors in the economy and the marketplace and to assess the extent to which different securities and portfolios will respond to chang
8、es in these factors.A primary goal of security analysis is to determine these factors and the sensitivities of security return to movements in these factors.One-Factor ModelsThe one-factor models refer to the return-generating process for securities involves a single factor. These factors may be one
9、 of the followings:The predicted growth rate in GDPThe expected return on market indexThe growth rate of industrial produc-tion, etc. One-Factor ModelsAn example Page 295: Figure 11.1One-Factor ModelsGeneralizing the exampleAssumptionsThe random error term and the factor are uncorrelated. (Why?)The
10、random error terms of any two securities are uncorrelated. (Why?)One-Factor ModelsExpected returnVarianceCovarianceOne-Factor ModelsTwo important features of one-factor modelThe tangency portfolio is easy to get.The returns on all securities respond to a single common factor greater simplifies the t
11、ask of identifying the tangency portfolio.The common responsiveness of securities to the factor eliminates the need to estimate directly the covariances between the securities.The number of estimates: 3N+2One-Factor ModelsThe feature of diversification is true of any one-factor model.Factor risk:Non
12、factor risk:Diversification leads to an averaging of factor riskDiversification reduces nonfactor riskOne-Factor ModelsMultiple-Factor ModelsThe health of the economy effects most firms, but the economy is not a simple, monolithic entity. Several common influences with pervasive effects might be ide
13、ntifiedThe growth rate of GDPThe level of interest rateThe inflation rateThe level of oil priceMultiple-Factor ModelsTwo-Factor ModelsAssume that the return-generating process contains two factors.Multiple-Factor ModelsThe second equation provides a two-factor model of a companys stock, whose return
14、s are affected by expectations concerning both the growth rate in GDP and the rate of inflation.Page 301: Figure 11.2To this scatter of points is fit a two-dimensional plane by using the statistical technique of multiple-regression analysis.Multiple-Factor ModelsFour parameters need to be estimated
15、for each security with the two-factor model: ai, bi1, bi2, and the standard deviation of the random error term.For each of the factors, two parameters need to be estimated. These parameters are the expected value of each factor and the variance of each factor. Finally, the covariance between factors
16、.Multiple-Factor ModelsExpected returnVarianceCovarianceMultiple-Factor ModelsThe tangency portfolioThe investor can proceed to use an optimizer to derive the curve efficient set.DiversificationDiversification leads to an averaging of factor risk.Diversification can substantially reduce nonfactor ri
17、sk.For a well-diversified portfolio, nonfactor risk will be insignificant.Multiple-Factor ModelsMultiple-Factor ModelsSector-Factor ModelsSector-factor models are based on the acknowledge that the prices of securities in the same industry or economic sector often move together in response to changes
18、 in prospects for that sector.To create a sector-factor model, each security must be assigned to a sector.Multiple-Factor ModelsA two-sector-factor modelThere are two sectors and each security must be assigned to one of them.Both the number of sectors and what each sector consists of is an open matt
19、er that is left to the investor to decide.The return-generating process for securities is of the same general form as the two-factor model. Multiple-Factor ModelsDiffering from the two-factor model, with two-sector-factor model, F1 and F2 now denote sector-factors 1 and 2, respectively. Any particul
20、ar security belongs to either sector-factor 1 or sector-factor 2 but not both.Multiple-Factor ModelsIn general, whereas four parameters need to be estimated for each security with a two-factor model (ai1,bi1,bi2 , ei,), only three parameters need to be estimated with a two-sector-factor model. (ai1,
21、 ei, and eitherbi1 or bi2 ).Multiple-factor modelsEstimating Factor ModelsThere are many methods of estimating factor models. There methods can be grouped into three major approaches:Time-series approachesCross-sectional approachesFactor-analytic approachesFactor Models and Equilibrium A factor mode
22、l is not an equilibrium model of asset pricing.Both equation show that the expected return on the stock is related to a characteristic of the stock, bi or i. The larger the size of the characteristic, the larger the assets return.Factor Models and EquilibriumThe key difference is ai and rf.The only
23、characteristic of the stock that determine its expected return according to the CAPM is ii, as rff denotes the risk-free rate and is the same for all securities.With the factor model, there is a second characteristic of the stock that needs to be estimated to determine the stocks expected return, ai
24、i.Factor Models and EquilibriumAs the size of ai differs from one stock to another, it presents the factor model from being an equilibrium model.Two stocks with the same value of bi can have dramatically different expected returns according to a factor model.Two stocks with the same value of i will
25、have the same expected return according to the equilibrium-based CAPM.Factor Models and EquilibriumThe relationship between the parameters ai and bi of the one-factor model and the single parameter i of the CAPM.If the expected returns are determined according to the CAPM and actual returns are gene
26、rated by the one-factor market model, then the above equations must be true. Arbitrage Pricing Theory APT is a theory which describes how a security is priced just like CAPM.Moving away from construction of mean-variance efficient portfolio, APT instead calculates relations among expected rates of r
27、eturn that would rule out riskless profits by any investor in well-functioning capital markets.Arbitrage Pricing TheoryAPT makes few assumptions.One primary assumption is that each investor, when given the opportunity to increase the return of his or her portfolio without increasing its risk, will p
28、roceed to do so.There exists an arbitrage opportunity and the investor can use an arbitrage portfolios.Arbitrage OpportunitiesArbitrage is the earning of riskless profit by taking advantage of differential pricing for the same physical asset or security. It typically entails the sale of a security a
29、t a relatively high price and the simultaneous purchase of the same security (or its functional equivalent) at a relatively low price.Arbitrage OpportunitiesArbitrage activity is a critical element of modern, efficient security markets.It takes relatively few of this active investors to exploit arbi
30、trage situations and, by their buying and selling actions, eliminate these profit opportunities.Some investors have greater resources and inclination to engage I arbitrage than others.Arbitrage OpportunitiesZero-investment portfolioA portfolio of zero net value, established by buying and shorting co
31、mponent securities .A riskless arbitrage opportunity arises when an investor can construct a zero-investment portfolio that will yield a sure profit.Arbitrage OpportunitiesTo construct a zero-investment portfolio, one has to be able to sell short at least one asset and use the proceeds to purchase o
32、n or more assets.Even a small investor, using borrowed money in this case, can take a large position in such a portfolio.There are many arbitrage tactics.Arbitrage OpportunitiesAn example:Four stocks and four possible scenariosthe rate of return in four scenariosPage 180-181 in the textbookThe expec
33、ted returns, standard deviations and correlations do not reveal any abnormality to the naked eye.Arbitrage OpportunitiesThe critical property of an arbitrage portfolio is that any investor, regardless of risk aversion or wealth, will want to take an infinite position in it so that profits will be dr
34、iven to an infinite level.These large positions will force some prices up and down until arbitrage opportunities vanishes. Factor Models and Principle of ArbitrageAlmost arbitrage opportunities can involve similar securities or portfolios.That similarity can be defined in many ways.One way is the ex
35、posure to pervasive factors that affect security prices.An example Page 324Factor Models and Principle of ArbitrageA factor model implies that securities or portfolios with equal-factor sensitivities will behave in the same way except for nonfactor risk.APT starts out by making the assumption that s
36、ecurity returns are related to an unknown number of unknown factors.Securities with the same factor sensitivities should offer the same expected returns.Arbitrage PortfoliosAn arbitrage portfolio must satisfy:A net market value of zeroNo sensitivity to any factorA positive expected returnArbitrage P
37、ortfoliosThe arbitrage portfolio is attractive to any investor who desires a higher return and is not concerned with nonfactor risk. It requires no additional dollar investment, it has no factor risk, and it has a positive expected return.One-Factor Model and APTPricing effects on arbitrage portfoli
38、oThe buying-and-selling activity will continue until all arbitrage possibilities are significant reduced or eliminatedThere will exist an approximately linear relationship between expected returns and sensitivities of the following sort:One-Factor Model and APTThe equation is the asset pricing equat
39、ion of the APT when returns are generated by one factorThe linear equation means that in equili-brium there will be a linear relationship between expected returns and sensitivities.The expected return on any security is, in equilibrium, a linear function of the securitys sensitivity to the factor, b
40、iOne-Factor Model and APTAny security that has a factor sensitivity and expected return such that it lies off the line will be mispriced according to the APT and will present investors with the opportunity of forming arbitrage portfolios.Page 327: Figure 12.1One-Factor Model and APTInterpreting the
41、APT pricing equationRiskfree asset, rfPure factor portfolio, p*Two-Factor Model And APTThe two-factor modelArbitrage portfoliosA net market value of zeroNo sensitivity to any factorA positive expected returnTwo-Factor Model And APTPricing effectsTwo-Factor Model And APT 1 is the expected return on t
42、he portfolio which is known as a pure factor portfolio or pure factor play, because it has:Unit sensitivity to one factor (F1, b1=1)No sensitivity to any other factor (F2, b2=0)Zero nonfactor riskThis portfolio is a well-diversification portfolio that has unit sensitivity to the first factor and zer
43、o sensitivity to the second factor.Two-Factor Model And APTIt is the same with 2 . It is the well-diversification portfolio that has zero sensitivity to the first factor and unit sensitivity to the second factor, meaning that it has b1=0 and b2=1.Such as a portfolio that has zero sensitivity to pred
44、icted industrial production and unit sensitivity to predicted inflation would have an expected return of 6%.Multiple-factor modelThe APT pricing equationMultiple-Factor Model And APTThe APT And The CAPMCommon pointBoth require equilibriumBoth have almost similar equationDistinctionsDifferent equilib
45、rium mechanismMany investors v.s. Few investorsDifferent PortfolioMarket portfolio v.s. Well-diversifyed P.SummaryThe Factor ModelsOne-factor modelsMulti-factor modelsFactor models and equilibriumArbitrage opportunity and portfolioThe arbitrage pricing equationOne-factor equationMulti-factor equationAssignments For chapter 8ReadingsPage 282 through 301Page 308 through 321ExercisesPage 304: 14,15; Page 323: 4, 13Q/A:Page 302: 3Page 324: 8
