CAPM Model and α- Jensen Model upon Condition of Increasing of Volatilities Heterogeneity

11 Pages Posted: 24 Feb 2013

See all articles by Vigen Babkenovich Minasyan

Vigen Babkenovich Minasyan

Russian Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA) - Research Laboratory of Corporate Strategies

Date Written: February 19, 2013

Abstract

When forming an investment portfolio two effect occur affecting its non-systematic risk. The first of them (diversification) is well studied, but the second one (inequality of specific risk of the portfolios components) remains at the periphery. In (Limitovsky and Minasyan 2009, 2010) it is shown on basis of empiric materials and theoretical analysis that this effect referred to as "a beetle in an ant-hill" effct by the authors of these papers can impose a considerable influence on the specific risk of the portfilio and its increase or decrease. Investors can find rational, from their point of view, high-risk investments ("beetles") and invest in them. At the same time, they dont strictly adhere to recommendations of the two funds theorem. In these cases a certain correction to the CAPM model is necessary which would account for inclusion even but a small amount of highly volatile shares into the portfolio. Of the highhest importance for examination is the case when "beetles" with various volatility levels exceeding the initial portfolios volatility are included into the portfolio. These criteria of selection of shares as investment objects, alpha-Jasens in our case, require appropriate corrections too. This paper proposes an approach to realizing such corrections.

Suggested Citation

Minasyan, Vigen Babkenovich, CAPM Model and α- Jensen Model upon Condition of Increasing of Volatilities Heterogeneity (February 19, 2013). Available at SSRN: https://ssrn.com/abstract=2220677 or http://dx.doi.org/10.2139/ssrn.2220677

Vigen Babkenovich Minasyan (Contact Author)

Russian Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA) - Research Laboratory of Corporate Strategies ( email )

Moscow
Russia

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