Free Trial

Safari Books Online is a digital library providing on-demand subscription access to thousands of learning resources.

  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint
Share this Page URL
Help

Chapter 4: Regression Analysis > Fama decomposition

Fama decomposition

Fama9 extended the concept of Treynor's ratio in his paper “Components of Investment Performance” to further break down the return of a portfolio.

The excess return above risk free rate can be expressed as the selectivity (or Jensen's alpha) plus the return due to systematic risk as follows:

(4.27) Unnumbered Display Equation

If a portfolio is completely diversified there is no specific risk and the total portfolio risk will equal the systematic risk. Portfolio managers will give up diversification seeking additional return. Selectivity can be broken down into net selectivity and the return required to justify the diversification given up.


  

You are currently reading a PREVIEW of this book.

                                                                                                                    

Get instant access to over $1 million worth of books and videos.

  

Start a Free Trial


  
  • Safari Books Online
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint