Bart Campbell, CFA, is a portfolio manager who has recently met with a prospective client, Jane Black.

Question:

Bart Campbell, CFA, is a manager who has recently met with a prospective client, Jane Black. After conducting a survey market line (SML) performance analysis using the Dow Jones Industrial Average as her market proxy, Black claims that her has experienced superior performance. Campbell uses the as an investment performance measure and finds that Black’s plots below the SML. Campbell concludes that Black’s apparent superior performance is a function of an incorrectly specified market proxy, not superior investment management. Justify Campbell’s conclusion by addressing the likely effects of an incorrectly specified market proxy on both beta and the slope of the SML.

Capital Asset Pricing Model
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. The CAPM is a model for pricing an individual security or portfolio. For individual securities, we make use of the security market line (SML) and its... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...