| Alpha | The abnormal rate of return on a security in excess of what would be predicted by an equilibrium model like CAPM or APT.
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| Beta | The measure of the systematic risk of a security. The tendency of a security's returns to respond to swings in the broad market.
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| Expected return-beta relationship | Implication of the CAPM that security risk premiums (expected excess returns) will be proportional to beta.
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| Homogenous expectations | The assumption that all investors use the same expected returns and covariance matrix of security returns as inputs in security analysis.
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| Illiquidity | Difficulty, cost, and/or delay in selling an asset on short notice without offering substantial price concessions.
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| Liquidity | Liquidity refers to the speed and ease with which an asset can be converted to cash.
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| Market model | Another version of the index model that breaks down return uncertainty into systematic and nonsystematic components.
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| Market portfolio | The portfolio for which each security is held in proportion to its market value.
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| Market price of risk | A measure of the extra return, or risk premium, that investors demand to bear risk. The reward-torisk ratio of the market portfolio.
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| Mutual fund theorem | A result associated with the CAPM, asserting that investors will choose to invest their entire risky portfolio in a market-index mutual fund.
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| Security market line | Graphical representation of the expected return-beta relationship of the CAPM.
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| Zero-beta portfolio | The minimum-variance portfolio uncorrelated with a chosen efficient portfolio.
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