RISKY Assets- CAPM

[kangkan]

Hi

in the risky asset chapter we dfeined Bi= risk of the stock/risk of the market

We used sigma M as a measure of the risk in the market..does any one know how this sigma m is calculated...in varian it seems they used SP index stock as a subsititute,but what if the market just has 10 stocks with variable returns?

Thanks

[Dreyfus]

The market risk is defined as the standard deviation of market returns, and market returns is nothing but the return on portfolio of all the stocks but it is not possible to take portfolio comprising of each and every stock. So we always consider market index, take for instance sensex that comprises of 30 variable stocks designed in such a way that they reflect not true but closer to true situation of the market or u can think it as an artificial portfolio. So it doesn't matter that index comprises of 10 stocks or 500 stocks! All it matters is the choice of index while estimating the capm return on particular stock! However plz let me if there is something I hv missed above....

[vandita24x7]

S.D.  is nothing but s.d of market return. U will obtain the market returns from the market prices and market prices will be given to you. So then be it 10 stocks or 100 one can find the s.d. ofcourse for big data one cannot manually obtain the s.d values need to do in excel etc.

vandita

On 19 Jun 2014 13:28, "Vaibhav Garg [via Discussion forum]" <[hidden email]> wrote:

The market risk is defined as the standard deviation of market returns, and market returns is nothing but the return on portfolio of all the stocks but it is not possible to take portfolio comprising of each and every stock. So we always consider market index, take for instance sensex that comprises of 30 variable stocks designed in such a way that they reflect not true but closer to true situation of the market or u can think it as an artificial portfolio. So it doesn't matter that index comprises of 10 stocks or 500 stocks! All it matters is the choice of index while estimating the capm return on particular stock! However plz let me if there is something I hv missed above....

---

If you reply to this email, your message will be added to the discussion below:

http://discussion-forum.2150183.n2.nabble.com/RISKY-Assets-CAPM-tp7593064p7593065.html

To start a new topic under General Discussions, email [hidden email]
To unsubscribe from Discussion forum, click here.
NAML

[kangkan]

oh thats very simple..thanks a lot.,...saves me a lot of headche :)