some of these are straight forward. alright CAPM and CML easy. One is systematic the other is systematic and non systematic combined. check MKT model defines Beta therefore CAPM is based on MKT Model. check TB is okay to compute and get an understanding of the optimal portfolio. check BUT!! where does Active return stand in all this?? factor tilt sounds similar to APT where factor * sensitivity but the calculations are totally absurd. anyone got a clue? or uses it? where sensitivity is it’s T-stat… FMCAR is the additional active risk brought with additional stocks. active risk squared = active factor + active specific where active specific = sum(wi*var(error)^2) and weight is difference between portfolio weight and benchmark weight. WTF!!! abstract abstract abstract. lost lost lost
Woah, relax. I guess I can start this: Factor tilt means when you increase your exposure to a certain sector because you think certain events will occur in the capital markets.
Remember too that a tracking portfolio has zero active factor risk and lots of active specific risk, because the factor betas are made to exactly match the benchmarks’, but the assets are in different proportions and may even be different assets (i.e., similar stocks but in different companies) so that the active specific risk is high.