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Re: CAPM

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  • pgreenfinch
    Without entering the debate about precopernician schools, it seems that an evolution of CAPM, called the APT (arbitrage pricing theory) recognizes a
    Message 1 of 10 , Dec 30, 2004
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      Without entering the debate about precopernician schools,
      it seems that an evolution of CAPM, called the APT
      (arbitrage pricing theory) recognizes a multiciplicity
      of beta coefficient, each one corresponding to some
      specific effects, and among them the "size effect"
      which is the name of the one you mention, if I underszood
      your query well.
      Another thing is stock profiling, which is my effort
      to try to categorize stocks by types of return and
      volatility. But take it as a wine tasting method, useful
      to educate the stock gourmet financial palate, seems to
      me, rather than an academic classification ;-)
      http://perso.wanadoo.fr/pgreenfinch/e5typimg.htm
      Peter

      --- In Behavioral-Finance@yahoogroups.com, "mailcdallen1"
      <mailcdallen1@y...> wrote:
      >
      >
      > I attend an obscured state school, and I am very concerned with
      the
      > quality of education I have received. An associate professor
      > informed me that he received his post with my school because he
      > researched the effectiveness of the Capital Asset Pricing Model
      > (CAPM). However, he has since renounced his views on the CAPM and
      > has turned to behavioral finance. He has petitioned the dean to
      > allow him to teach a class in behavioral and strategic finance,
      but
      > the dean rejected his proposal because it opposes the school's
      > philosophy on teaching only "what has been proven to work."
      >
      > That last line sends chills down my spine because I doubt the CAPM
      > works. This school has a class that controls a half million-
      dollar
      > portfolio. Each stock is chosen using the CAPM. The teacher
      > strongly prefers Peter Lynch, and thus the entire class has to
      adopt
      > the Lynch model--at least the students who want high marks do. My
      > concern is that teacher has convinced the class that the market is
      > inefficient, but he has focused on the wrong things. He believes
      > that the markets' tendency to place a low value on "turn around
      > companies" is a sign of inefficiency. However, I see it as
      > uncertainty. He believes that small, obscured companies are
      > undervalued. I believe they are fairly valued because they are
      small
      > in incapable of drawing capital needed for growth. Most
      > disturbingly, he is very optimistic about the growth of various
      > firms. I was the only person pessimistic about the growth of a
      media
      > production company. Even the CEO of this company expressed
      concern
      > over what Tivo has done to advertising. He spent about nine weeks
      > scorning a plastic molding company. On the last week of class,
      the
      > company declared a special dividend of $11.75, and the teacher
      > started talking about how optimistic he always was about this
      company.
      >
      > Does some of what I said about this teacher remind any one of the
      > pitfalls that behavioral finance warns of? The teacher wants to
      > follow a leader who might have been more lucky than skillful, he
      has
      > too much confidence, and he is constantly over optimistic about
      > growth.
    • Philip Pearlman
      i thought your original post was wonderful and got the point. mailcdallen1 wrote: I was meaning that I do not have access to the most
      Message 2 of 10 , Dec 30, 2004
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        i thought your original post was wonderful and got the point.

        mailcdallen1 <mailcdallen1@...> wrote:


        I was meaning that I do not have access to the most advance theory or
        practice like students in the University of Chicago or other similar
        universities have.  In the big shceme of things, it really does not
        affect my views.  I would still be critical of the CAPM regardless of
        where I attended.  Right now, I am exploring alternatives.  I am
        reading books on behavioral finance, and I want to find someone whom
        I can discuss my finding with.  Since I am not in contact with people
        who are familiar with behavioral finance, I am turning to this board.

        This board is intended to focus on behavioral finance, so I apologize
        for not getting straight to the point.  In the future, I would like
        to discuss more detailed problems with the CAPM and possible
        solutions using behavioral finance.  Most of my concerns revolve
        around using beta and Hamanda's formula.  Ulatmately, I want to
        discuss the more advanced aspects of behavioral finance that I will
        likely not be able to pick up from a textbook.  As for now, I thought
        discussing something more simple like how this investment instuctor's
        philosophy compares and contrasts with behavioral finace would be a
        nice ice breaker before I delve into the more technical details. 


        --- In Behavioral-Finance@yahoogroups.com, hokie1 <hokie1@y...> wrote:
        > What is your point from your "obscured" state school?
        >
        >
        > --- mailcdallen1 <mailcdallen1@y...> wrote:
        >
        > >
        > >
        > > I attend an obscured state school, and I am very
        > > concerned with the
        > > quality of education I have received.  An associate
        > > professor
        > > informed me that he received his post with my school
        > > because he
        > > researched the effectiveness of the Capital Asset
        > > Pricing Model
        > > (CAPM).  However, he has since renounced his views
        > > on the CAPM and
        > > has turned to behavioral finance.  He has petitioned
        > > the dean to
        > > allow him to teach a class in behavioral and
        > > strategic finance, but
        > > the dean rejected his proposal because it opposes
        > > the school's
        > > philosophy on teaching only "what has been proven to
        > > work."
        > >
        > > That last line sends chills down my spine because I
        > > doubt the CAPM
        > > works.  This school has a class that controls a half
        > > million-dollar
        > > portfolio.  Each stock is chosen using the CAPM.
        > > The teacher
        > > strongly prefers Peter Lynch, and thus the entire
        > > class has to adopt
        > > the Lynch model--at least the students who want high
        > > marks do.  My
        > > concern is that teacher has convinced the class that
        > > the market is
        > > inefficient, but he has focused on the wrong things.
        > >  He believes
        > > that the markets' tendency to place a low value on
        > > "turn around
        > > companies" is a sign of inefficiency.  However, I
        > > see it as
        > > uncertainty.  He believes that small, obscured
        > > companies are
        > > undervalued.  I believe they are fairly valued
        > > because they are small
        > > in incapable of drawing capital needed for growth.
        > > Most
        > > disturbingly, he is very optimistic about the growth
        > > of various
        > > firms.  I was the only person pessimistic about the
        > > growth of a media
        > > production company.  Even the CEO of this company
        > > expressed concern
        > > over what Tivo has done to advertising.  He spent
        > > about nine weeks
        > > scorning a plastic molding company.  On the last
        > > week of class, the
        > > company declared a special dividend of $11.75, and
        > > the teacher
        > > started talking about how optimistic he always was
        > > about this company.
        > >
        > > Does some of what I said about this teacher remind
        > > any one of the
        > > pitfalls that behavioral finance warns of? The
        > > teacher wants to
        > > follow a leader who might have been more lucky than
        > > skillful, he has
        > > too much confidence, and he is constantly over
        > > optimistic about
        > > growth.
        > >
        > >
        > >
        > >
        > >
        > >
        > >
        > >
        >
        >
        >
        >            
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      • Rich Schaefer
        LMAO! Take it easy on him. It is understandable. Most state schools are indeed obscured from reality. I think this is his point. hokie1
        Message 3 of 10 , Dec 30, 2004
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          LMAO!  Take it easy on him.  It is understandable.  Most state schools are indeed obscured from reality.
           
          I think this is his point.

          hokie1 <hokie1@...> wrote:
          What is your point from your "obscured" state school?


          --- mailcdallen1 <mailcdallen1@...> wrote:

          >
          >
          > I attend an obscured state school, and I am very
          > concerned with the
          > quality of education I have received.  An associate
          > professor
          > informed me that he received his post with my school
          > because he
          > researched the effectiveness of the Capital Asset
          > Pricing Model
          > (CAPM).  However, he has since renounced his views
          > on the CAPM and
          > has turned to behavioral finance.  He has petitioned
          > the dean to
          > allow him to teach a class in behavioral and
          > strategic finance, but
          > the dean rejected his proposal because it opposes
          > the school's
          > philosophy on teaching only "what has been proven to
          > work."
          >
          > That last line sends chills down my spine because I
          > doubt the CAPM
          > works.  This school has a class that controls a half
          > million-dollar
          > portfolio.  Each stock is chosen using the CAPM.
          > The teacher
          > strongly prefers Peter Lynch, and thus the entire
          > class has to adopt
          > the Lynch model--at least the students who want high
          > marks do.  My
          > concern is that teacher has convinced the class that
          > the market is
          > inefficient, but he has focused on the wrong things.
          >  He believes
          > that the markets' tendency to place a low value on
          > "turn around
          > companies" is a sign of inefficiency.  However, I
          > see it as
          > uncertainty.  He believes that small, obscured
          > companies are
          > undervalued.  I believe they are fairly valued
          > because they are small
          > in incapable of drawing capital needed for growth.
          > Most
          > disturbingly, he is very optimistic about the growth
          > of various
          > firms.  I was the only person pessimistic about the
          > growth of a media
          > production company.  Even the CEO of this company
          > expressed concern
          > over what Tivo has done to advertising.  He spent
          > about nine weeks
          > scorning a plastic molding company.  On the last
          > week of class, the
          > company declared a special dividend of $11.75, and
          > the teacher
          > started talking about how optimistic he always was
          > about this company.
          >
          > Does some of what I said about this teacher remind
          > any one of the
          > pitfalls that behavioral finance warns of? The
          > teacher wants to
          > follow a leader who might have been more lucky than
          > skillful, he has
          > too much confidence, and he is constantly over
          > optimistic about
          > growth.
          >
          >
          >
          >
          >
          >
          >
          >



                     
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        • hokie1
          Can you imagine in undergrad trying to teach student the ins and outs of Behavioral Finance? Forget about the teachings of the various Utility Models, but the
          Message 4 of 10 , Dec 30, 2004
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            Can you imagine in undergrad trying to teach student
            the ins and outs of Behavioral Finance? Forget about
            the teachings of the various Utility Models, but the
            theories? It would be a class in of itself.

            If the person wants to learn more about Behavioral
            Finance, enroll in a graduate prograte to learn more.
            One book that I particularly like is "Beyond Greed and
            Fear" by Hersh Shefrin. While the book is extremely
            formula and math "light", the author does an
            outstanding job teaching the various aspects and the
            underlying assumptions of the various theories such as
            loss aversion, mental accounting, myopia, etc.
            --- Rich Schaefer <rschaefs36@...> wrote:

            > LMAO! Take it easy on him. It is understandable.
            > Most state schools are indeed obscured from reality.
            >
            > I think this is his point.
            >
            > hokie1 <hokie1@...> wrote:
            > What is your point from your "obscured" state
            > school?
            >
            >
            > --- mailcdallen1 <mailcdallen1@...> wrote:
            >
            > >
            > >
            > > I attend an obscured state school, and I am very
            > > concerned with the
            > > quality of education I have received. An
            > associate
            > > professor
            > > informed me that he received his post with my
            > school
            > > because he
            > > researched the effectiveness of the Capital Asset
            > > Pricing Model
            > > (CAPM). However, he has since renounced his views
            > > on the CAPM and
            > > has turned to behavioral finance. He has
            > petitioned
            > > the dean to
            > > allow him to teach a class in behavioral and
            > > strategic finance, but
            > > the dean rejected his proposal because it opposes
            > > the school's
            > > philosophy on teaching only "what has been proven
            > to
            > > work."
            > >
            > > That last line sends chills down my spine because
            > I
            > > doubt the CAPM
            > > works. This school has a class that controls a
            > half
            > > million-dollar
            > > portfolio. Each stock is chosen using the CAPM.
            > > The teacher
            > > strongly prefers Peter Lynch, and thus the entire
            > > class has to adopt
            > > the Lynch model--at least the students who want
            > high
            > > marks do. My
            > > concern is that teacher has convinced the class
            > that
            > > the market is
            > > inefficient, but he has focused on the wrong
            > things.
            > > He believes
            > > that the markets' tendency to place a low value on
            > > "turn around
            > > companies" is a sign of inefficiency. However, I
            > > see it as
            > > uncertainty. He believes that small, obscured
            > > companies are
            > > undervalued. I believe they are fairly valued
            > > because they are small
            > > in incapable of drawing capital needed for growth.
            >
            > > Most
            > > disturbingly, he is very optimistic about the
            > growth
            > > of various
            > > firms. I was the only person pessimistic about
            > the
            > > growth of a media
            > > production company. Even the CEO of this company
            > > expressed concern
            > > over what Tivo has done to advertising. He spent
            > > about nine weeks
            > > scorning a plastic molding company. On the last
            > > week of class, the
            > > company declared a special dividend of $11.75, and
            > > the teacher
            > > started talking about how optimistic he always was
            > > about this company.
            > >
            > > Does some of what I said about this teacher remind
            > > any one of the
            > > pitfalls that behavioral finance warns of? The
            > > teacher wants to
            > > follow a leader who might have been more lucky
            > than
            > > skillful, he has
            > > too much confidence, and he is constantly over
            > > optimistic about
            > > growth.
            > >
            > >
            > >
            > >
            > >
            > >
            > >
            > >
            >
            >
            >
            >
            > __________________________________
            > Do you Yahoo!?
            > Send a seasonal email greeting and help others. Do
            > good.
            > http://celebrity.mail.yahoo.com
            >
            >
            > you may unsubscribe by sending an email to
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