Is your question quoted in a Quantitative sense (proving through mathematical calculation) or a Qualitative sense (whereby the figures are simply arbitrary and the question is argumentative) ?Originally posted by motoway:MArket beta is always = 1 rite? So if the market return is 15.9%, how is it possible that a portfolio with beta of 0.91 can actually achieve returns of 19%?
Financial pros out there pls help me. supposed to present nxt week.![]()
![]()
Qualitative i guess.Originally posted by Paradise Lost:Is your question quoted in a Quantitative sense (proving through mathematical calculation) or a Qualitative sense (whereby the figures are simply arbitrary and the question is argumentative) ?
hmm.. thanks for the article.. still ploughin thru details..Originally posted by AndrewPKYap:
You will firstly have to explain what beta is about and how its is formulated. Beta is simply a measurement of the risk variance of the market portfolio derived from the CAPM framework. The market portfolio, in theoretical terms, is a huge basket of stocks, equities, bonds, commodities, property and even valuable art and fine wine, thus making it highly diversified (Markowitz's Diversification Theory) and thus given a benchmark risk value of 1.Originally posted by motoway:Qualitative i guess.
it's about this guy who holds a portfolio of 100 stocks in S & P 500. Yet during the 5 yr period, the linked returns from the portfolio generated an annualized total return of 19%, or 3.1% better than the 15.9% return on S & P 500 stock index. The portfolio had a below-market beta of 0.91 over the same time span.
Qn : Comment on Max's use of beta measure as an indicator of portfolio risk in light of recent test of its explanatory power with respect to stock returns.
yep.![]()
hmm paradise, u mean that the guy's use of beta measurement is not justifiable?Originally posted by Paradise Lost:You will firstly have to explain what beta is about and how its is formulated. Beta is simply a measurement of the risk variance of the market portfolio derived from the CAPM framework. The market portfolio, in theoretical terms, is a huge basket of stocks, equities, bonds, commodities, property and even valuable art and fine wine, thus making it highly diversified (Markowitz's Diversification Theory) and thus given a benchmark risk value of 1.
Shortcomings and criticisms? The beta and the subsequent CAPM framework's shortcomings simply rests on the un-observability of the market portfolio, thus making the initial assessed value of 1 to be "flawed" and the subsequent CAPM framework to be skewed towards the "flaw".
In Ben's case, his portfolio of 100 stocks (being diversified as it is) could possibly contain a huge amount of high growth equities that were outperforming their counterparts in the rest of the S&P 500 and given the fundamental flaw of the Beta, makes capturing the risk of Ben's portfolio to be inaccurate.
Fristly, what is the presumed beta of the S&P 500? If its below 0.91, therefore according to the CAPM framework, he is rewarded for undertaking more risks and thus bequeathed higher returns.Originally posted by motoway:hmm paradise, u mean that the guy's use of beta measurement is not justifiable?
Refer to my earlier post.Originally posted by motoway:is it because he should use beta with respect to other stocks in the portfolio as compared of the market's beta?
Thanks alot for the great help!Originally posted by Paradise Lost:Fristly, what is the presumed beta of the S&P 500? If its below 0.91, therefore according to the CAPM framework, he is rewarded for undertaking more risks and thus bequeathed higher returns.
I won't say that the use of beta as a measurement is not "justifiable". The market beta of 1 is simply a benchmark and that no one can prove that its neither right nor wrong. What you can say is that other frameworks are needed to obtain the true variance of the portfolio and that the sole reliance of beta and the CAPM framework to capture the portfolio risk is a fallacy.
Refer to my earlier post.
Your very much welcome. I don't think of myself as a "finance pro" at all, I just like to share knowledge and exchange views with other people.Originally posted by motoway:Thanks alot for the great help!![]()
![]()
Reali is finance pro.![]()
![]()