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Fisher's separation theorem

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Definition of Fisher's separation theorem

Fisher's Separation Theorem Image 1

Fisher's separation theorem

The firm's choice of investments is separate from its owner's attitudes towards
investments. Also refered to as portfolio separation theorem.



Related Terms:

Fisher effect

A theory that nominal interest rates in two or more countries should be equal to the required real
rate of return to investors plus compensation for the expected amount of inflation in each country.


Fisher rate

the rate of return that equates the present values
of the cash flows of all projects being considered; it is the
rate of indifference


Interest rate parity theorem

Interest rate differential between two countries is equal to the difference
between the forward foreign exchange rate and the spot rate.


International Fisher effect

States that the interest rate differential between two countries should be an
unbiased predictor of the future change in the spot rate.


international Fisher effect

Theory that real interest rates in all countries should be equal, with differences in nominal rates reflecting differences in expected inflation.



Mutual fund theorem

A result associated with the CAPM, asserting that investors will choose to invest their
entire risky portfolio in a market-index or mutual fund.


Portfolio separation theorem

An investor's choice of a risky investment portfolio is separate from his
attitude towards risk. Related:fisher's separation theorem.


Fisher's Separation Theorem Image 2

Separation property

The property that portfolio choice can be separated into two independent tasks: 1)
determination of the optimal risky portfolio, which is a purely technical problem, and 2) the personal choice
of the best mix of the risky portfolio and the risk-free asset.


Separation theorem

The value of an investment to an individual is not dependent on consumption
preferences. All investors will want to accept or reject the same investment projects by using the NPV rule,
regardless of personal preference.


Spot futures parity theorem

Describes the theoretically correct relationship between spot and futures prices.
Violation of the parity relationship gives rise to arbitrage opportunities.


Two-fund separation theorem

The theoretical result that all investors will hold a combination of the riskfree
asset and the market portfolio.



 

 

 

 

 

 

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