Asked by Grace Carroll on May 01, 2024
Verified
The Treynor-Black model does not assume that
A) the objective of security analysis is to form an active portfolio of a limited number of mispriced securities.
B) the cost of less than full diversification comes from the nonsystematic risk of the mispriced stock.
C) the optimal weight of a mispriced security in the active portfolio is a function of the degree of mispricing, the market sensitivity of the security, and its degree of nonsystematic risk.
D) indexing is always optimal.
Treynor-Black Model
A portfolio optimization model that integrates market equilibrium theory with security selection to enhance portfolio performance.
Nonsystematic Risk
The risk associated with an individual asset or company, which can be reduced through diversification, unlike systematic risk.
Mispriced Securities
Financial instruments whose market prices deviate from their fair values due to various factors like information asymmetry or market inefficiencies.
- Understand the principles and assumptions behind the Treynor-Black model in portfolio management.
Verified Answer
Learning Objectives
- Understand the principles and assumptions behind the Treynor-Black model in portfolio management.
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