List of Assumptions..

Does anyone in their notes have a list of all the assumptions for the various models for the exam? I think this would be very helpful since it seems like a lot of the multiple choice questions stem from assumptions based on which ones are correct and which ones are not.

Might as well start compiling a set of assumptions… APT: 1. Factor model describes asset returns 2. Many asset and investors diversify to eliminate non-systematic risk 3. No arbitrage opportunities among portfolios

Differences between APT vs. CAPM APT does not assume that all investors have same expectations and no transaction costs as CAPM

not yet but will be.

APT does not required investment in the market portfolio, while CAPM does.

Dude do you have any idea how many assumptions there are? Just make your own notes.

APT: Asset Returns explained by factor models Asset specific risk can be diversified away Assets are priced so that there are no arbitrage possibilities APT is an Equilibrium Pricing Model Indicates what Er should be under no arb assumptions Macroeconomic Multifactor models are adhoc Multifactor return models are time series regression models that explains variation in one asset Intercept return in Macro model= assets expected return (not Risk free rate like APT or Capm) Mulitfactor models, factors represent “surprises” vs APT where factors are risk premia.

muffin09 Wrote: ------------------------------------------------------- > Dude do you have any idea how many assumptions > there are? Just make your own notes. Not that many (I think). Off the top of my head: 1/ Regression assumptions 2/ MM assumptions 3/ CAPM and APT 4/ Extended CAPM vs ICAPM Those multifactor models things are not really assumptions, are they? I think they just explain what the models mean.

Assumptions of the linear regression model: 1. Relationship between X and Y is linear in the parameters b0 and b1 2. Independent variable x is not random 3. expected value of the error term is 0: E(e) = 0 4. Variance of the error term is the same for all observations 5. Error term is uncorrelated across observations 6. Error term is normally distributed There are also 6 assumptions for multiple regressions but I think they are basically the same. I think as long as you get these you’re good. I guess I need to look at 2,3, and 4 from above. Don’t know them too well