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Comprehensive Analysis of Zero-Beta Portfolio & Arbitrage Pricing Theory

Explore the zero-beta portfolio model & empirical tests of CAPM, Roll's critique, APT, empirical results, and implications for investors. Delve into differences with CAPM, well-diversified portfolios, and single/multiple-factor APT.

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Comprehensive Analysis of Zero-Beta Portfolio & Arbitrage Pricing Theory

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  1. Chapter 19EXTENSIONS OF CAPITAL ASSET PRICING THEORY • What is the zero-beta portfolio model? • What are some results of empirical tests of the capital asset pricing model? • What is Roll’s critique of the capital asset pricing model? • What is the arbitrage pricing theory? Contemporary Investments: Chapter 19

  2. Modifications of the CAPM • Zero-Beta Portfolio. • Zero-Beta Portfolio Model. Contemporary Investments: Chapter 19

  3. Figure 19.1 – Zero-Beta Portfolio Model Contemporary Investments: Chapter 19

  4. Figure 19.2 – Risk/Return Relationship for Zero-Beta Portfolio Model Contemporary Investments: Chapter 19

  5. Empirical tests and critique of the CAPM • Empirical tests • Joint hypothesis testing • Procedure of empirical tests • Empirical results Contemporary Investments: Chapter 19

  6. Empirical tests and critique of the CAPM-Cont. • Critique of the CAPM • Limits on tests • Linear risk/return relationship • Market portfolio composition • Range of SMLs • Market efficiency effects • Conflicts between proxies Contemporary Investments: Chapter 19

  7. Figure 19.3 – Empirical Findings for the CAPM Contemporary Investments: Chapter 19

  8. Figure 19.4 – Empirical Findings for the CAPM: Apr 1957-Dec 1965 Contemporary Investments: Chapter 19

  9. Figure 19.5 – Different Well-Diversified Portfolios and Their Corresponding SMLs Contemporary Investments: Chapter 19

  10. Arbitrage Pricing Theory • Concept of Arbitrage • Single-Factor APT • Single-factor APT for a well-diversified portfolio • Example of Exhibit 19.6 • Development of the single-factor APT Contemporary Investments: Chapter 19

  11. Arbitrage Pricing Theory – Cont. • Differences between the single-factor APT and the CAPM • APT with multiple factors • Two-factor APT • N-factor APT • Final synopsis of APT • Implications for Investors Contemporary Investments: Chapter 19

  12. Figure 19.6 – Arbitraging Portfolio K Using Portfolio CD Contemporary Investments: Chapter 19

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