Introduction The consumption-based model as a complete answer to most asset pricing question in principle, does not work well in practice; This observation motivates effects to tie the discount factor m to other data; Linear factor pricing models are most popular models of this sort in finance; They dominate discrete-time empirical work
Introduction Overview of investment styles; Empirical evidence on returns of small capitalization firms and value stocks; How to identify investment styles of a mutual fund Characteristic-based style analysis Return-based style analysis Style benchmarks
INVESTMENTS Fourth Edition Efficient Market Hypothesis (EMHD Do security prices reflect information Why look at market efficiency Implications for business and corporate finance Implications for investment
Fourth Edition Advantages of the Single Index Model Reduces the number of inputs for diversification. Portfolio of 50 assets 50 expected returns;50 variances 1225 covariance. too difficult a task
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
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
