Security Market Line
Security Market Line
In Markowitz Portfolio Theory, a line on a chart representing the capital asset pricing model. The security market line plots risk versus expected return of the market. The security market line is a useful tool in determining whether a given security is undervalued and/or a market outperform. If a security plots the security market line, it indicates a higher expected return for a given level of risk than the market as a whole.
security market line
A line used to illustrate the relationship between risk and return for individual securities. The security market line shows a positive linear relationship between returns and systematic risk as measured by beta.
Security Market Line (SML)
What Does Security Market Line (SML) Mean?
Security market line (SML) is the representation of the Capital asset pricing model. It displays the expected rate of return of an individual security as a function of systematic, non-diversifiable risk (itsbeta).[1]
Investopedia explains Security Market Line (SML)
The SML essentially graphs the results from the capital asset pricing model (CAPM) formula. The x-axis represents the risk (beta), and the y-axis represents the expected return. The market risk premium is determined from the slope of the SML. The security market line is a useful tool in determining whether an asset being considered for a portfolio offers a reasonable expected return for its risk. Individual securities are plotted on the SML graph. If a security's risk versus expected return is plotted above the SML, it is undervalued because the investor can expect a greater return for the inherent risk. A security plotted below the SML is overvalued because the investor would be accepting less return for the amount of risk assumed.
There is a question about what the SML looks like when beta is negative. A rational investor will accept these assets even though they yield sub-risk-free returns, because they will provide "recession insurance" as
In Markowitz Portfolio Theory, a line on a chart representing the capital asset pricing model. The security market line plots risk versus expected return of the market. The security market line is a useful tool in determining whether a given security is undervalued and/or a market outperform. If a security plots the security market line, it indicates a higher expected return for a given level of risk than the market as a whole.
security market line
A line used to illustrate the relationship between risk and return for individual securities. The security market line shows a positive linear relationship between returns and systematic risk as measured by beta.
Security Market Line (SML)
What Does Security Market Line (SML) Mean?
Security market line (SML) is the representation of the Capital asset pricing model. It displays the expected rate of return of an individual security as a function of systematic, non-diversifiable risk (itsbeta).[1]
Investopedia explains Security Market Line (SML)
The SML essentially graphs the results from the capital asset pricing model (CAPM) formula. The x-axis represents the risk (beta), and the y-axis represents the expected return. The market risk premium is determined from the slope of the SML. The security market line is a useful tool in determining whether an asset being considered for a portfolio offers a reasonable expected return for its risk. Individual securities are plotted on the SML graph. If a security's risk versus expected return is plotted above the SML, it is undervalued because the investor can expect a greater return for the inherent risk. A security plotted below the SML is overvalued because the investor would be accepting less return for the amount of risk assumed.
There is a question about what the SML looks like when beta is negative. A rational investor will accept these assets even though they yield sub-risk-free returns, because they will provide "recession insurance" as