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Presentation On Security Analysis Portfolio Management: by Bikash Saha

The presentation discusses factor models for security analysis and portfolio management. It introduces the single factor model and multi-factor model. The single factor model uses one market index to measure the risk and return of individual securities. It expresses the expected return of a security as the alpha coefficient plus the beta coefficient multiplied by the rate of return of the market index, plus an error term. The multi-factor model incorporates additional factors beyond the market, such as interest rates, GDP growth, and inflation.

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Bikash Saha
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59 views10 pages

Presentation On Security Analysis Portfolio Management: by Bikash Saha

The presentation discusses factor models for security analysis and portfolio management. It introduces the single factor model and multi-factor model. The single factor model uses one market index to measure the risk and return of individual securities. It expresses the expected return of a security as the alpha coefficient plus the beta coefficient multiplied by the rate of return of the market index, plus an error term. The multi-factor model incorporates additional factors beyond the market, such as interest rates, GDP growth, and inflation.

Uploaded by

Bikash Saha
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Presentation

on
Security analysis
&
portfolio management
By;
Bikash saha
FACTOR MODEL
Contents

Introduction

What is Factor model?

Types of factor model

Features of single index model

Examples of factor model


Introduction

The basic objectives of investment analysis is to provide the


investor can identify his optimal portfolio when there are a
number of possibilities. An optimal portfolio is the most
feasible portfolio that afford the highest return with lower
risk.

The factor model is also know as Index model.

Factor model is used to reduce the number of estimates.


Single Index Model (SIM)
The single-index model is a simple asset pricing model commonly used in the finance industry to
measure risk and return of a stock. Mathematically the SIM is expressed as:

Rᵢ = aᵢ + ᵦᵢRm + eᵢ

Rᵢ = expected return on security i

a = Alpha co-efficient (interest of the straight line)

ᵦᵢ = Beta co-efficient (slope of straight line)

Rm = Rate of return on market index

eᵢ = Error term
Single Index Model

The following equation can be used as per the single index model.

Rᵢ = aᵢ + bᵢRm + eᵢ

Rᵢ = expected return on security

A = Alpha co-efficient (interest of the straight line)

ᵢ = Beta co-efficient (slope of straight line)

Rm = Rate of return on market index

eᵢ = Error term
Multi Index Model
The followings are some of the factors besides the
market factors:

Interest rates changes

Growth rate of GDP

Difference between the return in short term and long term treasury bills.
Difference between the return in long term corporate bonds and treasury
bills.
Inflation etc.

Exchange rate
Features of single factor model

Diversification

Tangency portfolio
Thank you

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