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c) What are the advantages of the single-index model over the Markowitz model?

c) What are the advantages of the single-index model over the Markowitz model?

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Answer #1

Advantages of single index model over markowitz model are as follows-

A. Single index model is easier to interpret than Harry markowitz model and it is also easy to calculate rate of return.

B. Single index model is segregating the risk between firm specific risk and market risk Whereas Markowitz model is not segregating the risk.

C. Single index model is also determining the market risk premium which is not a component of calculation for the Harry markowitz model.

D. single index model is discounting the effect of diversification in its overall calculation whereas markowitz model is not focusing upon the diversification through elimination of unsystematic risk.

These are the differences between single index model and markowitz model

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