Arbitrage Pricing Theory and Multifactor Models of Risk and Return (FRM P1 - Book 1 - Chapter 12)

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For FRM (Part I & Part II) video lessons, study notes, question banks, mock exams, and formula sheets covering all chapters of the FRM syllabus, click on the following link: analystprep.com/shop/unlimite...
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After completing this reading, you should be able to:
- Describe the inputs, including factor betas, to a multifactor model.
- Calculate the expected return of an asset using a single-factor and a multifactor model.
- Describe properties of well-diversified portfolios and explain the impact of diversification on the residual risk of a portfolio.
- Explain how to construct a portfolio to hedge exposure to multiple factors.
- Describe and apply the Fama-French three-factor model in estimating asset returns.

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22 июл 2024

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Комментарии : 57

@ammarkamran4908 5 лет назад

So much better than my professor in my M.Sc program. Thank You.

@DubbieLuv 2 года назад

Thanks for explaining this in 20 minutes what my prof couldn't do in 8 hours of lessons

@analystprep 2 года назад

Glad it helped! If you like our video lessons, it would be appreciated if you could take 2 minutes of your time to leave us a review here: trustpilot.com/review/analystprep.com

@jackyyinkiwong7968 Год назад

thanks for structuring it so well! love it!

@supriyamurdia4989 3 года назад

"100s of years ago, when I was sitting in my first economics class"! :p

@GabiTBruno 4 года назад

Very well explained Dr. Forjan. Thanks for sharing your knowledge with us!

@analystprep 4 года назад

You're welcome!

@treepeenbawlz1934 4 года назад

Very comprehensive. Thank you Prof Forjan for taking the time to prepare this amazing video

@analystprep 4 года назад

You are very welcome. Good luck on your exam!

@manisingh-wk4bn 3 года назад

You made it look so easy!!

@sarahcates1935 3 года назад

Hi, thank you for this. I was able to get my homework answers just by fumbling around and looking at examples, but I came looking for a video that would explain to me HOW to think about this so I could understand. This did just that!!! Really appreciate it.

@analystprep 3 года назад

Glad it was helpful!

@timonotter3402 6 дней назад

great video, thank you so much!

@ehsiao412 4 года назад

Thank you for making the learning experience so pleasant and well explained. ♥️

@analystprep 4 года назад

Glad you enjoyed it!

@parthaprotimbarua603 11 месяцев назад

Thank you, Dr. Forjan. This was really insightful.

@analystprep 10 месяцев назад

Glad you enjoyed it! If you like our video lessons, it would be appreciated if you could take 2 minutes of your time to leave us a review here: trustpilot.com/review/analystprep.com

@pablobravo4533 3 года назад

Thank you very much! Just a little question, why in the case 3 of hedging exposure to multiple factors do we have to use the risk free asset? Wouldn't it be enough to just short the GDP and CS factor portfolio?

@satyajitdash5174 Год назад

Thanks a million Professor you made the topic quite easy to understand.🙌🙌🙌

@analystprep Год назад

Glad it was helpful! If you like our video lessons, it would be appreciated if you could take 2 minutes of your time to leave us a review here: trustpilot.com/review/analystprep.com

@johng1907 4 года назад

That sounds like my children's lives....legend!

@MoinulHossain-rw2ry 2 месяца назад

What is not much discussed in this multifactor models is that the expected return is also a function of the factors. Anything unexpected is adjusted by the relationship in regression analysis that change in actual return = beta * change in the factor. The change in factor is captured by the the unexpected/suprise change of the factor,

@sandar07321224 4 года назад

Thank you for sharing

@vidhyam.r.1344 3 года назад

Thank you so much sir, you made APT simple to understand

@analystprep 3 года назад

You are most welcome

@Joao-pb5zb 4 года назад

That's perfect! Thank you very much 🇧🇷

@analystprep 4 года назад

Thank you too! If you like our video lessons, it would be helpful to spread the word if you could take 2 minutes of your time to leave us a review at www.trustpilot.com/review/analystprep.com

@beomkomap 3 года назад

@@analystprep Hi sir, is the linked provided legit? I tried to access but Chrome prompted as Virus threats. Thanks.

@gbemisolaolayinka7134 4 года назад

I have nothing to say to you other than i love you. You the best prof..

@analystprep 4 года назад

You're welcome.

@user-kx5ky4dc9n 8 месяцев назад

« arbitrage sounds like my children’s life » 10:10 the greatest image of arbitrage existence you could make!!

@gilbertotargino92 4 года назад

Excellent lesson teacher , thanks for the free knowledge

@analystprep 4 года назад

You are very welcome! If you like our video lessons, it would be helpful to spread the word if you could take 2 minutes of your time to leave us a review at www.trustpilot.com/review/analystprep.com

@brtoneal6339 4 года назад

Hi i dun really understand the step that create beta=1 on one factor and other factors' beta=0, what does that mean??

@patrickgold3616 3 года назад

One factor in the multi-factor model is the expected return of stock i, but isn't the expected return exactly what we are trying to get using the APT? How do we know that beforehand?

@investwithvincent6329 2 года назад

12:00... correct me if I'm wrong but if we want to hedge away the beta factors, we need to construct a portfolio where the weights and the desired beta match?

@zeze3883 4 года назад

THANKS a lot Professor

@analystprep 4 года назад

You are welcome! Good lukc on the exam!

@pallapasr3882 3 года назад

Thank you!

@analystprep 3 года назад

You're welcome!

@patrickgold3616 3 года назад

Are you not missing an error term on the APT model? or is that on purpose?

@Swetter1000 2 года назад

What I don't understand. On the slide at 05:06 it says that the expected value of a firm specific return is always zero but later on he gives an example that shows up a positive expected return of 10%?

@CR7scoutbushcrafter1 Год назад

Good afternoon Dr. Forjan. I just have a question to confirm if my thinking is correct... At 14:29 when you were talking about hedging away both factor risks and creating a portfolio H (30% CS factor risk, 40% GDP factor risk and 40% risk free rate), in order for the complete portfolio to have the desired attributes (no factor effect- all factors hedged away) the short in portfolio H would have to be combined with the original long position at a 1:1 ratio. Is that correct? Thank you in advance for your answer.

@user-serachen2021 Год назад

thank u for sharing❤

@analystprep Год назад

You're very welcome! If you like our video lessons, it would be appreciated if you could take 2 minutes of your time to leave us a Google review using this link: g.page/r/CQIlM78xSg01EB0/review

@CarbonImpulse 5 лет назад

Am i right in saying that using the APT model like at 18:33 that the risk premium is the same as the sensitivity aspect in the two factor model?

@analystprep 5 лет назад

The excess return on the market factor (risk premium) in the Fama-French model (three-factor model) is similar to the Beta in the CAPM model. The risk premium is used in a lot of financial models to estimate the sensitivity of the asset to market movements.

@CarbonImpulse 5 лет назад

@@analystprep sorry timestamp was a little off therefore still a bit lost I actually meant the slide at 18:27 but thanks for a quick response

@peteradam942 3 года назад

The polynomial factor weightings calculations are useful in asset pricing.

@analystprep 3 года назад

Very true!

@mauricioperedo9657 3 года назад

I love this guy...

@analystprep 2 года назад

Glad to hear! If you like our video lessons, it would be helpful if you could take 2 minutes of your time to leave us a review here: www.trustpilot.com/review/analystprep.com

@PavanSharma-rp2tq 2 года назад

could you kindly explain how to construct a CS portfolio or a GDP portfolio? Practically does this mean you are looking for a portfolio that mimics the GDP? Please provide a real life example. Thanks.

@asddaasdda4813 4 года назад

Is beta calculated the same way as with the CAPM?

@analystprep 4 года назад

Yes, Beta is always calculated basically the same way. The easiest way to remember it is that B = 1 is the mean, so if you have Beta = 1.5, that is 1.5 times the mean.