Investments, 11th Edition (exclude Access Card)
Investments, 11th Edition (exclude Access Card)
11th Edition
ISBN: 9781260201543
Author: Zvi Bodie Professor; Alex Kane; Alan J. Marcus Professor
Publisher: McGraw-Hill Education
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter 8, Problem 1PS
Summary Introduction

To select: The advantages and disadvantages of indexed model over Markowitz model.

Introduction: An investor may invest in various stocks to reduce the risk of losses. Such a theory is called correlation theory. It is believed that an investor takes a lot of risk to achieve higher returns on their investment portfolio.

Expert Solution & Answer
Check Mark

Explanation of Solution

Advantage of indexed model over Markowitz model:

Markowitz model requires vastly used number of estimates. These estimates can lead to many errors in estimation while implementing the procedure. This is not a part of indexed model.

Disadvantage of indexed model:

As per the assumption of indexed model, the return residuals are not correlated. Now, this assumption would be incorrect if the index used in estimation omits a significant risk factor.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Please help me with this , with tge store name puebleo in St. Thomas US virgin islands
I would like to expand pueblo in S5. Thomas virgin islands to Spain. Please help with an analysis expansion.
Please help me with this, guidelines for the super market pueblo in St. Thomas US virgin islands
Knowledge Booster
Background pattern image
Finance
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Text book image
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Text book image
Financial Management: Theory & Practice
Finance
ISBN:9781337909730
Author:Brigham
Publisher:Cengage
Text book image
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Text book image
Personal Finance
Finance
ISBN:9781337669214
Author:GARMAN
Publisher:Cengage
Text book image
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Portfolio Management; Author: DevTechFinance;https://www.youtube.com/watch?v=Qmw15cG2Mv4;License: Standard YouTube License, CC-BY