MGT330H5 Lecture Notes - Lecture 5: Arbitrage Pricing Theory, Capital Asset Pricing Model
Document Summary
Lecture #5 - alternative asset pricing model (fama french & arbitrage) Alpha a - measures the risk adjusted excess return earned by a security portfolio over a given period. Commonly used to measure portfolio managers performance. A = actual excess return - capm required return. The capm relies on several assumptions, many of which are called into question in the real world. Furthermore, a substantial amount of empirical evidence shows that the capm does not hold well in practice; specifically: The ex-ante y-intercept of the sml has been found to be higher than the risk-free rate.
