If you have an investment in stocks, go to your broker's research website and investigate how they calculate beta. Please assess the importance that your broker gives to this risk measure.

Investigate what other measures of risk are considered by your broker and comment on the relative importance of those risk variables.

 

DB4-2 Problems of CAPM

 

CAPM is a theoretical model that relies in many assumptions. One of them relates to the efficiency of the market portfolio. What stock indices are commonly used as market proxies? Are they good? Can we say they are efficient?

 

DB4-3 Optimal number of stocks

 

Typical finance textbooks purport that when you construct a diversified portfolio of about 30 stocks, you will eliminate all the unsystematic risk in the portfolio. Go to Motley Fool's website and explain their position about this number.

What do they recommend as the optimal number of stocks to hold in a portfolio? What is their argument for this number? If you have your own opinion and/or experience, please share it.

 

DB4-4 Beta estimation

 

There are several ways of estimating beta. In fact, beta can be computed with daily, weekly, monthly or yearly returns. Additionally, the number of data points that can be used also varies. Some people may use 26, 52, 104 weeks, or 24, 36 or 60 months. After reading the Web Safari , discuss what type of beta would be suitable for different type of people.

Short-term investors? 

 Long-term investors? 

 Analysts?