economic.tex

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\author{MZ}
\title{Share Terms}
\begin{document}
	\section{Basic Terms}
	\subsection{EPS}~\\
	
	Net income = 25 million \\
	
	- pays out 1 million in preferred dividends \\
	
	- has 10 million shares for half of the year, 15 million shares for the other half \\
	
	$EPS = \frac{25M}{ 0.5 * 10M + 0.5 * 15M} = \frac{25M}{12.5M} = \$1.92$ \\
	
	\subsection{Beta}~\\
	
	Use regression to calculate Beta coefficient: ($\beta$ \space absolute value): \\	

	$ |\beta| = 1$ means stock price change along with the market
	
	$ |\beta| > 1$ means stock price is more volatile than market \\
	
	\subsection{CAPM}
	\[
		E(r_{i})=r_{f}+\beta _{im}[E(r_{m})-r_{f}]\
	\]
	
	$ E(r_{i})$ is the expected asset return
	
	$r_{f}$ is risk free reurn, (replace with short term treasury)
	
	$\beta_{\alpha}$ is systemetic risk coefficient for asset $\alpha$
	
	\[
	\beta_{a} = {\frac{{\mbox{Cov}}(r_{a},r_{m})} {\sigma_{m}^{2}}}
	\] \\
	
	\subparagraph{Assumption} ~\\
		
	1. all investor can borrow any amount of money at risk free interest
	
	2. all investor has same expectation of $E, \sigma, \mbox{Cov}$
	
	3. not tax
	
	4. any buy or sell won't affect stock price. There's no change on price
	
	5. all asset has same, fixed supply amount
	
	6. no transaction cost, totally liquid \\
	
	According to asset pricing theory, beta represents the type of risk, systematic risk, that cannot be diversified away. When using beta, there are a number of issues that you need to be aware of: 
	
	(1) betas may change through time; \\
	
	(2) betas may be different depending on the direction of the market (i.e. betas may be greater for down moves in the market rather than up moves); \\
	
	(3) the estimated beta will be biased if the security does not frequently trade; \\
	
	(4) the beta is not necessarily a complete measure of risk (you may need multiple betas). \\
	
	Also, note that the beta is a measure of co-movement, not volatility. It is possible for a security to have a zero beta and higher volatility than the market. \\
	
	\subparagraph{APT theory} ~\\
	
	FAMA-FRENCH 3 factor model
	
	
	
	
\end{document}