asset allocation across risky and risk free portfolios
Download
Skip this Video
Download Presentation
Asset Allocation across risky and risk-free portfolios

Loading in 2 Seconds...

play fullscreen
1 / 10

Asset Allocation across risky and risk-free portfolios - PowerPoint PPT Presentation


  • 210 Views
  • Uploaded on

Asset Allocation across risky and risk-free portfolios. Riccardo Colacito. Allocating Capital Between Risky & Risk-Free Assets. Possible to split investment funds between safe and risky assets Risk free asset: T-bills Risky asset: stock (or a portfolio). Example. r f = 7%. s f = 0%.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' Asset Allocation across risky and risk-free portfolios' - sona


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
allocating capital between risky risk free assets
Allocating Capital Between Risky & Risk-Free Assets
  • Possible to split investment funds between safe and risky assets
  • Risk free asset: T-bills
  • Risky asset: stock (or a portfolio)
example
Example

rf = 7%

sf = 0%

E(rp) = 15%

sp = 22%

y = % in p

(1-y) = % in f

one additional caveat
Can we borrow from a bank at the same rate at which we lend it money?

How does it affect the CAL?

One additional caveat

Lending rate

Borrowing rate

risk aversion and allocation
Risk Aversion and Allocation
  • Greater levels of risk aversion lead to larger proportions of the risk free rate
  • Lower levels of risk aversion lead to larger proportions of the portfolio of risky assets
  • Willingness to accept high levels of risk for high levels of returns would result in leveraged combinations
open question
Open question
  • How can we estimate expected returns and standard deviations?
    • Use historical data
    • Use survey data
ad