Treynor-Black Model

AAA

DEFINITION of 'Treynor-Black Model'

A type of asset allocation model that was developed by Jack Treynor and Fischer Black. The model tries to determine the optimal combination of passively and actively managed assets in an investment portfolio.When determining the optimal allocation of assets, the model focuses primarily on securities' systematic and unsystematic risk.

INVESTOPEDIA EXPLAINS 'Treynor-Black Model'

If using the Treynor-Black model, an individual can see that the model focuses less on the Beta of a security and more on its unsystematic risk. The more unsystematic risk a security has, the less weight it is given in the Treynor-Black model. As a result of this tendency, the Treynor-Black model is said to favor low-return, low-risk securities over those with higher return and higher risk.

RELATED TERMS
  1. Strategic Asset Allocation

    A portfolio strategy that involves setting target allocations ...
  2. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. ...
  3. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  4. Modern Portfolio Theory - MPT

    A theory on how risk-averse investors can construct portfolios ...
  5. Risk

    The chance that an investment's actual return will be different ...
  6. Diversification

    A risk management technique that mixes a wide variety of investments ...
Related Articles
  1. Achieving Optimal Asset Allocation
    Investing Basics

    Achieving Optimal Asset Allocation

  2. 6 Asset Allocation Strategies That Work
    Options & Futures

    6 Asset Allocation Strategies That Work

  3. 5 Things To Know About Asset Allocation
    Investing Basics

    5 Things To Know About Asset Allocation

  4. Modern Portfolio Theory: Why It's Still ...
    Active Trading

    Modern Portfolio Theory: Why It's Still ...

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center