which are the following are true about Treynor-Black model?
Answers
Answer:
The Treynor-Black model is a portfolio-optimization model that seeks to maximize a portfolio's Sharpe ratio by combining an actively managed portfolio built with a few mispriced securities and a passively managed market index fund. The Sharpe ratio evaluates the performance of a portfolio or a single investment against the risk-free rate of return. The standard risk-free return rate is the U.S. Treasury.
History of the Treynor-Black Model
The Treynor-Black model, published in 1973 by Jack Treynor and Fischer Black, assumes that the market is highly—but not perfectly—efficient. Following the model, an investor who agrees with the market pricing of an asset may also believe that they have additional information that can be used to generate abnormal returns—known as alpha—from a few mispriced securities. The investor using the Treynor-Black model will select a mix of securities to create a dual-partitioned portfolio. One portion of the portfolio is a passive investment, and the other part is an active investment.
Explanation:
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