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If your issue is the holding period "sensibility", I don't have persuasive economic/fundamental motivation about it. It's an interesting question. Anyway in econometric point of view the issue is part of instability parameters problem. If the time horizon for your investment project is, for example, one year, then you need return and beta one year based. ...


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Mean variance and CAPM are not the same thing. Neither the mean-variance model are the part of the CAPM. Rather the CAPM, in certain sense, is an part of the mean variance model. To put it better, if we have $N$ risky assets plus a riskless one then we can achieve the a la CAPM representation. Moreover if the tangency ptf overlap the market ptf, as the ...


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A possible way is to think at the Single Index Model (SIM). In this case if an asset $i$ is uncorrelated with the market, then it is uncorrelated with each other. Thus the condition ".. each uncorrelated with the others and with the market ..." boil down in the second request. Remember that in the SIM $σ_i,j=β_iβ_jσ^2_m$. In this framework, if the SIM hold, ...


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Regarding asset pricing models, Google scholar will be a good place to search. Begin your search my putting the title of the seminal paper "The Cross-Section of Expected Stock Returns" by E. F. Fama and K. R. French published in 1992. Go to the citations link of this paper in the results. Finally, sort by date and it will give you latest articles on the ...


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It's most common to use end of the period figures. However, it should not matter as long as you're consequent. Further, the end of period metric will be very similar to the measure at the beginning of the next period.


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The most common approach is to calculate returns as $r_t=\frac{p_t-p_{t-1}}{p_{t-1}}$ or $r_t=ln\left (\frac{p_t}{p_{t-1}}\right)$ using close prices at the end of the month.


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What you are missing is that the cashflow itself is also a random variable. We assess the risk related to that cashflow by relating it to a linear measure of risk that is expressed in terms of variance and covariance... by happy accident this turns out to be beta, and if the CAPM actually works, turns out making our lives easier. If you rewrite the CAPM in ...


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I think that Jensen inequality in this context is relevant to averaging return over time. And that when discounting over multiple periods, convexity needs to be accounted for. That is to say that we cannot simply discount over multiple periods by using $$\frac{1}{(1+\sum{R_t})}$$ as a discount factor. We have to really use $$\frac{1}{\prod{(1+R_t)}}.$$ The ...


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Let us ignore the riskless rate for simplicity of the presentation. If you have (historical or simulated) return series $r_i$ for the portfolio and $r_i^M$ for the market, then the beta is the OLS regression beta: $$ \beta = cov(r_i,r_i^M)/var(r_i^M). $$ Then if you write $r_i = \alpha + \beta r_i^M + \epsilon_i$ on the other hand $$ \epsilon_i = r_i - ( ...



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