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INTRODUCTION
Introduction
What is risk?
An overview of market performance
Measuring performance
Return and risk measures
12000
10000
8000
6000
4000
2000
0
Jan-30
Jan-35
Jan-40
Jan-45
Jan-50
Jan-55
Jan-60
Jan-65
Jan-70
Jan-75
Jan-80
Jan-85
Jan-90
Jan-95
Jan-00
An overview of market performance – is there
risk?
6
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
Jan-30
Jan-35
Jan-40
Jan-45
Jan-50
Jan-55
Jan-60
Jan-65
Jan-70
Jan-75
Jan-80
Jan-85
Jan-90
Jan-95
Jan-00
An overview of market performance – is there
risk?
7
5200
4700
4200
3700
3200
2700
2200
1700
1200
700
200
Nov-84
Nov-86
Nov-88
Nov-90
Nov-92
Nov-94
Nov-96
Nov-98
Nov-00
An overview of market performance – is there
risk?
8
Monthly % Change in
NASDAQ Composite Index
October 1984 to October 2002
30%
20%
10%
0%
-10%
-20%
-30%
Nov-84
Nov-86
Nov-88
Nov-90
Nov-92
Nov-94
Nov-96
Nov-98
Nov-00
An overview of market performance – is there
risk?
9
12000
11000
10000
9000
8000
7000
6000
5000
4000
3000
2000
Apr-84
Apr-85
Apr-86
Apr-87
Apr-88
Apr-89
Apr-90
Apr-91
Apr-92
Apr-93
Apr-94
Apr-95
Apr-96
Apr-97
Apr-98
Apr-99
Apr-00
Apr-01
Apr-02
An overview of market performance – is there
risk?
10
Monthly % Changes of
S&P/TSX Composite Index
April 1984-October 2002
20.0%
10.0%
0.0%
-10.0%
-20.0%
-30.0%
May-84
May-85
May-86
May-87
May-88
May-89
May-90
May-91
May-92
May-93
May-94
May-95
May-96
May-97
May-98
May-99
May-00
May-01
May-02
Measuring Performance: Returns
11
1
T
1 GAR 1 to T 1 HPR 1 to T
1
(1 R t )
T
T
t 1
12
Mean returns
The mean return is the T
arithmetic average rate of
return and is calculated as
R t
Mean return R t 1
follows: T
13
The risk premium
14
16
How to interpret the standard deviation as a measure
of risk
17