Characteristic line

Characteristic line
x-axis: return on the market portfolio
return on a share

The characteristic line is a regression line that is derived from past values ​​of the return on a share and the return on the market portfolio ( capital asset pricing model ). The slope of the characteristic line is determined by the beta factor expressed (β-factor). The characteristic line of a share shows the typical reaction of its return depending on the market development.

equation

${\displaystyle R_{P}=\alpha _{P}+\beta _{P}\times R_{M}+\epsilon _{P}}$

With

${\displaystyle R_{P}}$: Expected portfolio return

${\displaystyle R_{M}}$: Expected return on the market

${\displaystyle \alpha _{P}}$: Regression constant / return component of the portfolio that is constant over time

${\displaystyle \beta _{P}}$: Regression coefficient / slope of the characteristic line / sensitivity of the portfolio with regard to changes in market return

${\displaystyle \epsilon _{P}}$: Disturbance

See also

• Capital market line
• Portfolio theory

source

1. ↑ Gabler Wirtschaftslexikon: characteristic line . Retrieved July 20, 2011.

Web links

• Characteristic line in the FinanceWiki of the TU Dresden