Foundations of Risk Management

kaushalya.narendran
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Foundations of Risk Management

Postby kaushalya.narendran » Sun Jan 12, 2014 12:54 pm

'All assets with the same Beta should earn the same return'.
So does that mean, irrespective of what the price of the asset is and irrespective of other factors, if two assets have the same beta, they earn the same return?

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shreyas
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Foundations of Risk Management

Postby shreyas » Tue Jan 21, 2014 10:26 am

For a diversified Beta is a correct measure for a security's risk factors. The CAPM assumptions states that investors hold the market portfolio that means a diversified portfolio. Also we assume that the investor is concerned with expected return and risk, so the two points of an asset to be considered are expected return and beta.

"All assets with the same Beta should earn the same return" is interpreted with that two securities have same risk factors, whether the price may differ. This also implies that they provide the same return because it they not then there is a arbitrage opportunity which later leads to converge in prices of these securities.

pradeeppdy
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Foundations of Risk Management

Postby pradeeppdy » Wed Apr 02, 2014 7:51 am

If two assets or securities have the same beta they earn same return. The beta measures the riskiness or the variability in returns with respect to systematic risk of any security.
the securities with high beta change more compared to the ones with low beta.


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