INVESTMENTS Two-Security Portfolio: Return rp =W+W2r2 W Proportion of funds in Security 1 W2 Proportion of funds in Security 2 =Expected return on Security 1
Capital allocation The choice of proportion in safe asset and proportion in risky asset; Most institutional investors follows top- down analysis---The first part is asset allocation and the next part is security selection decision
Types of market efficiency The weak-form of efficiency: price accurately reflect all information that can be derived by examining market trading data such as past prices, trading volume, short interest rate, etc