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Relevance of liquidity investment constraint

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Question 1: Explain the Capital Asset Pricing Model (CAPM) and its assumptions. Why is the model criticised? Given its criticism, how can this model be used in the "real world"?

Question 2: Multifactor models are also used to price investments. Explain how do multifactor models improve pricing of an investment over the CAPM? Explain the two multifactor models: Fama and French 3 factor model and the Arbitrage Pricing Theory (APT).

Question 3: Explain the relevance of an Investment Horizon investment constraint. How does longer or shorter investment horizon impact the asset allocation? What are multi-stage investment horizons and what is their impact on asset allocations?

Question 4: Explain the relevance of Liquidity investment constraint. How does the desire to have higher or lower level of desired liquidity impact the asset allocation? Explain how should investors manage their liquidity needs: only through yields or only through sale of capital gains (sale of assets)?

Question 5: Unique preferences, Taxes and Regulation are additional investment constraints. Explain each of these. Explain if adding investment constraints increase the ability to generate the desired investment objectives while keeping the portfolio within the risk objectives?

Reference no: EM132620227

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