# Single-index model

**single index model**

The single-index model (SIM) is a simple asset pricing model to measure both the risk and the return of a stock.wikipedia

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### Asset pricing

**Asset pricesAsset pricing theoryasset price**

The single-index model (SIM) is a simple asset pricing model to measure both the risk and the return of a stock.

### Alpha (finance)

**alphaexcess returnoutperform market averages**

\alpha_i is the stock's alpha, or abnormal return

The alpha coefficient (\alpha_i) is a parameter in the single index model (SIM).

### Stock

**equitiesequityshares**

The single-index model (SIM) is a simple asset pricing model to measure both the risk and the return of a stock.

### William F. Sharpe

**William SharpeBill Sharpe**

The model has been developed by William Sharpe in 1963 and is commonly used in the finance industry.

### All Ordinaries

Each stock's performance is in relation to the performance of a market index (such as the All Ordinaries).

### Systematic risk

**non-diversifiable risksystematic market riskunsystematic**

To simplify analysis, the single-index model assumes that there is only 1 macroeconomic factor that causes the systematic risk affecting all stock returns and this factor can be represented by the rate of return on a market index, such as the S&P 500.

### Stock market index

**stock indexindexstock market indices**

To simplify analysis, the single-index model assumes that there is only 1 macroeconomic factor that causes the systematic risk affecting all stock returns and this factor can be represented by the rate of return on a market index, such as the S&P 500.

### S&P 500 Index

**S&P 500 ComponentS&P 500S&P**

To simplify analysis, the single-index model assumes that there is only 1 macroeconomic factor that causes the systematic risk affecting all stock returns and this factor can be represented by the rate of return on a market index, such as the S&P 500.

### Risk factor (finance)

**risk factorsrisk factor**

A more detailed model would have multiple risk factors.

### Capital asset pricing model

**CAPMCapital Asset Pricing Model (CAPM)asset appropriate discount rate**

* Capital asset pricing model

### Financial economics

**financial economistfinancial economistsfinance**

Whereas the above extend the CAPM, the single-index model is a more simple model.

### Treynor–Black model

**Treynor-Black**

(This is the so-called Diagonal Model of Stock Returns, or Single-index model due to William F. Sharpe).

### Estimation of covariance matrices

**Shrinkage estimationcovariance estimationestimate of the covariance**

2) the single-index model;

### Valuation (finance)

**valuationinvestment analysisvaluations**

Single-index model

### Price discovery

**price discovery mechanismpricing**

Single-index model

### Returns-based style analysis

**style analysis**

Single-index model