Finance for Normal People by Meir Statman

Author:Meir Statman
Language: eng
Format: epub
Publisher: Oxford University Press
Published: 2017-12-15T00:00:00+00:00

Consider the Barrier fund, formerly known as the Vice fund. It is a mutual fund “designed with the goal of delivering better risk-adjusted returns than the S&P 500 Index by investing in stocks within industries that have significant barriers to entry.” The chosen industries are ones generally shunned by socially responsible investors, including tobacco, alcoholic beverages, gaming, and defense/aerospace.16

The expected monthly return of the Barrier fund, according to the CAPM and based on monthly returns from September 2002 through March 2012, can be written as

The expected return of the Barrier fund = Risk-free rate + 0.84 [expected market-factor return]

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