REAPING REWARD BY INCREASING RISK
4 important questions on REAPING REWARD BY INCREASING RISK
Systematic risk/market risk:
And cannot be eliminated by diversification.
Unsystematic risk / specific risk:
The capital–asset pricing model:
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The Fama – French Three–Factor Model:
· Size: Measured by total equity market capitalization.
· Value: Measured by the ratio of market to book value.
· Momentum: Capturing the tendency for rising or falling stocks to continue moving in the same direction.
· Liquidity: Reflects the fact that investors need to be paid a return premium to induce the to hold illiquid securities.
· Quality: The stability of the company’s earnings and sales growth and its low amount of debt are measured.
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