Dynamic features of the Treynor – Black model

Kurochkin, Sergey

doi:10.7868/s0424738818020061

English

Home>Issue 2>Dynamic features of the Treynor – Black model

Dynamic features of the Treynor – Black model

Table of contents

Annotation Estimate Publication content

References Comments

Dynamic features of the Treynor – Black model

Annotation

PII

S042473880000014-4-1

DOI

10.7868/s0424738818020061

Publication type

Article

Status

Published

Authors

Sergey Kurochkin Send message

Affiliation: Federal Research Center
Address: Russian Federation, Moscow

Edition

Volume 54 Issue 2

Pages

71-88

Abstract

The Treynor – Black (TB) model seems to be the first active portfolio managenent model to give the direct answer to the problem of how a portfolio manager should incorporate analysts’ estimates in her/his portfolio structure. Concerning the assets’ returns probabilities distributions W. Sharpe Diagonal Model was taken here as an assumption. In this article I analyze the qualitative dynamics of the stock market under the dynamic version of the TB model, assuming all the investors apply the TB model to their portfolios. A similar assumption is made in CAPM, where market stability and pricing relations are deduced supposing all investors have equal access to information and use Modern Portfolio Theory in their portfolio decisions. I also show, how one should recalculate analysts’ target prices to alphas in TB model. The study of the related dynamic system reveals that the TB model produces stable pricing only for the big companies: about 10% market capitalization and more. These findings are then compared to the empirical data on market/target (the latter according to analysts’ consensus forecasts) prices for the Russian Blue Chips. It turns out that actual price dynamics usually shows steady gaps between target and market price while the model price should increasingly oscillate around the target. The likely interpretation is: the market does not trust analysts’ forecasts.

Keywords

portfolio management, Treynor – Black model, dynamic system, stability

Received

09.10.2017

Date of publication

29.06.2018

Number of purchasers

Views

2033

Readers community rating

0.0 (0 votes)

Cite Download pdf

GOST	Kurochkin S. Dynamic features of the Treynor – Black model // Economics and the Mathematical Methods. – 2018. – V. 54. – Issue 2 C. 71-88 . URL: https://emmras.ru/dinamicheskie-svoystva-modeli-treynora-bleka/?version_id=3991. DOI: 10.7868/s0424738818020061
MLA	Kurochkin, Sergey "Dynamic features of the Treynor – Black model." Economics and the Mathematical Methods. 54.2 (2018).:71-88. DOI: 10.7868/s0424738818020061
APA	Kurochkin S. (2018). Dynamic features of the Treynor – Black model. Economics and the Mathematical Methods. vol. 54, no. 2, pp.71-88 DOI: 10.7868/s0424738818020061


1	123	123 123

References

1. Black F., Litterman R. (1992). Global Portfolio Optimization. Financial Analysts Journal, 48, 5, 28–43.

2. Bodie Z., Kane A., Marcus A. (2014). Investments. N.Y.: McGraw Hill.

3. Bradshaw M., College B., Huang A. (2013). Analyst Target Price Optimism around the World. Midwest Finance Association 2013 Annual Meeting Paper. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2137291 (accessed: April 2017).

4. Cvitanic J., Lazrak A., Martellini L., Zapatero F. (2006). Dynamic Portfolio Choice with Parameter Uncertainty and the Economic Value of Analysts’ Recommendations. The Review of Financial Studies, 19, 4, 1113–1156.

5. Damodaran A. (2016). Investment Valuation. M.: Alpina (in Russian).

6. Fama E. (1965). The Behavior of Stock Market Prices. Journal of Business, 38, 34–105.

7. Katok A., Hasselblatt B. (2005). A First Course in Dynamics. M.: MCCME (in Russian).

8. Kurochkin S.V. (2014). If the Go Away. What Well Be Russian Stock Market in the Absence of Foreign Investors? Rynok tsennyh bumag, 8, 57–59 (in Russian).

9. Moscow Exchange (2014). MICEXINDEXCF index. Available at: http://www.moex.com/ru/index/MICEXINDEXCF/ constituents/ (accessed: April 2017, in Russian).

10. RIA Novosti (2016). CB Sees a Potential Threat in Robo-Advisors Spreading. Available at: http://ria.ru/ economy/20160217/1375957204.html (accessed: February 2017, in Russian).

11. Sberbank (2017). Dividends. Official Site. Available at: http://www.sberbank.com/ru/investor-relations/share-profile/ dividends (accessed: April 2017, in Russian).

12. Standard and Poors (2017). S&P 500. Available at: http://us.spindices.com/indices/equity/sp‑500 (accessed: April 2017).

13. Stowe J., Robinson T., Pinto J., McLeavy D. (2002). Analysis of Equity Investments: Valuation. N.Y.: Wiley and Sons.

14. Treynor J., Black F. (1973). How to Use Security Analysis to Improve Portfolio Selection. Journal of Business, 46, 1, 66–86.

15. US Treasury (2017). Interest Rate Statistics. Available at: https://www.treasury.gov/resource-center/data-chart-center/ interest-rates/Pages/default.aspx (accessed: April 2017).

16. Wikipedia (2017). S&P 500 Index. Available at: https://en.wikipedia.org/wiki/S%26P_500_Index (accessed: April 2017).

17. Zhongzhi H. (2007). Incorporating Alpha Uncertainty into Portfolio Decisions: A Bayesian Revisit of the Treynor – Black Model. Journal of Asset Management, 8, 3, 161–175.

Comments

No posts found

Write a review

Translate

References

Comments

Via social network