Capital Asset Pricing Model iii

7/28/2019 Capital Asset Pricing Model iii

1/8

tal asset pricing model - Wikipedia, the free encyclopedia

//en.wikipedia.org/wiki/Capital_asset_pricing_model[6/14/2013 8:49:24 PM]

Capital asset pricing modelFrom Wikipedia, the free encyclopedia

In finance, the capital asset pricing model (CAPM) is

used to determine a theoretically appropriate required rate

of return of an asset, if that asset is to be added to an

already well-diversified portfolio, given that asset's

non-diversifiable risk. The model takes into account the

asset's sensitivity to non-diversifiable risk(also known as

systematic risk or market risk), often represented by the

quantity beta () in the financial industry, as well as the

expected return of the market and the expected return of a

theoretical risk-freeasset.The model was introduced byJ ack Treynor (1961,

1962),[1]William Sharpe (1964),J ohn Lintner (1965a,b)

andJ an Mossin (1966) independently, building on the

earlier work ofHarry Markowitz on diversification and

modern portfolio theory. Sharpe, Markowitz and Merton

Miller jointly received the Nobel Memorial Prize in Economics for this contribution to the field of

financial economics.

Contents [hide]

1 The formula

2 Security market line

3 Asset pricing

4 Asset-specific required return

5 Risk and diversification

6 The efficient frontier

7 The market portfolio

8 Assumptions of CAPM

9 Problems of CAPM

10 See also

11 References

12 Bibliography

13 External links

The CAPM is a model for pricing an

individual security or portfolio. For

individual securities, we make use of the

security market line(SML) and its

relation to expected return and

systematic risk (beta) to show how the

An estimation of the CAPM and theSecurity Market Line (purple) for the DowJ ones Industrial Averageover 3 years formonthly data.

The formula [edit]

Read Edit View historyArticle Talk

Main page

Contents

Featured content

Current events

Random article

Donate to Wikipedia

Help

About Wikipedia

Community portalRecent changes

Contact Wikipedia

esky

Deutsch

Espaol

Franais

Gaeilge

Hrvatski

Italiano

Nederlands

Norsk bokml

Polski

Portugus

Slovenina

Suomi

Svenska

Edit links

Interaction

Toolbox

Print/export

Languages

Create account Lo
http://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Rate_of_returnhttp://en.wikipedia.org/wiki/Rate_of_returnhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Portfolio_%28finance%29http://en.wikipedia.org/wiki/Diversification_%28finance%29http://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Systematic_riskhttp://en.wikipedia.org/wiki/Market_riskhttp://en.wikipedia.org/wiki/Beta_%28finance%29http://en.wikipedia.org/wiki/Expected_returnhttp://en.wikipedia.org/wiki/Risk-free_interest_ratehttp://en.wikipedia.org/wiki/Risk-free_interest_ratehttp://en.wikipedia.org/wiki/Jack_L._Treynorhttp://en.wikipedia.org/wiki/William_Forsyth_Sharpehttp://en.wikipedia.org/wiki/John_Lintnerhttp://en.wikipedia.org/wiki/Jan_Mossinhttp://en.wikipedia.org/wiki/Harry_Markowitzhttp://en.wikipedia.org/wiki/Diversification_%28finance%29http://en.wikipedia.org/wiki/Modern_portfolio_theoryhttp://en.wikipedia.org/wiki/Modern_portfolio_theoryhttp://en.wikipedia.org/wiki/Merton_Millerhttp://en.wikipedia.org/wiki/Merton_Millerhttp://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economic_Scienceshttp://en.wikipedia.org/wiki/Financial_economicshttp://en.wikipedia.org/wiki/Security_market_linehttp://en.wikipedia.org/wiki/Security_market_linehttp://en.wikipedia.org/wiki/Systematic_riskhttp://en.wikipedia.org/wiki/Dow_Jones_Industrial_Averagehttp://en.wikipedia.org/wiki/Dow_Jones_Industrial_Averagehttp://en.wikipedia.org/wiki/Dow_Jones_Industrial_Averagehttp://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=1http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edithttp://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=historyhttp://en.wikipedia.org/wiki/Talk:Capital_asset_pricing_modelhttp://en.wikipedia.org/wiki/Main_Pagehttp://en.wikipedia.org/wiki/Portal:Contentshttp://en.wikipedia.org/wiki/Portal:Featured_contenthttp://en.wikipedia.org/wiki/Portal:Current_eventshttp://en.wikipedia.org/wiki/Special:Randomhttp://donate.wikimedia.org/wiki/Special:FundraiserRedirector?utm_source=donate&utm_medium=sidebar&utm_campaign=C13_en.wikipedia.org&uselang=enhttp://en.wikipedia.org/wiki/Help:Contentshttp://en.wikipedia.org/wiki/Wikipedia:Abouthttp://en.wikipedia.org/wiki/Wikipedia:Community_portalhttp://en.wikipedia.org/wiki/Special:RecentChangeshttp://en.wikipedia.org/wiki/Wikipedia:Contact_ushttp://cs.wikipedia.org/wiki/CAPMhttp://de.wikipedia.org/wiki/Capital_Asset_Pricing_Modelhttp://el.wikipedia.org/wiki/%CE%A5%CF%80%CF%8C%CE%B4%CE%B5%CE%B9%CE%B3%CE%BC%CE%B1_%CE%91%CF%80%CE%BF%CF%84%CE%AF%CE%BC%CE%B7%CF%83%CE%B7%CF%82_%CE%A0%CE%B5%CF%81%CE%B9%CE%BF%CF%85%CF%83%CE%B9%CE%B1%CE%BA%CF%8E%CE%BD_%CE%A3%CF%84%CE%BF%CE%B9%CF%87%CE%B5%CE%AF%CF%89%CE%BD_%28CAPM%29http://es.wikipedia.org/wiki/Modelo_de_valoraci%C3%B3n_de_activos_financieroshttp://fr.wikipedia.org/wiki/Mod%C3%A8le_d%27%C3%A9valuation_des_actifs_financiershttp://ga.wikipedia.org/wiki/Samhail_Phraghs%C3%A1la_S%C3%B3cmhainn%C3%AD_Caipitilhttp://hr.wikipedia.org/wiki/CAPMhttp://it.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://nl.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://ja.wikipedia.org/wiki/%E8%B3%87%E6%9C%AC%E8%B3%87%E7%94%A3%E4%BE%A1%E6%A0%BC%E3%83%A2%E3%83%87%E3%83%ABhttp://no.wikipedia.org/wiki/Kapitalverdimodellenhttp://pl.wikipedia.org/wiki/Capital_Asset_Pricing_Modelhttp://pt.wikipedia.org/wiki/Modelo_de_precifica%C3%A7%C3%A3o_de_ativos_financeiroshttp://ru.wikipedia.org/wiki/CAPMhttp://sk.wikipedia.org/wiki/Model_oce%C5%88ovania_kapit%C3%A1lov%C3%BDch_akt%C3%ADvhttp://fi.wikipedia.org/wiki/Capital_Asset_Pricing_-mallihttp://sv.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://zh.wikipedia.org/wiki/%E8%B5%84%E6%9C%AC%E8%B5%84%E4%BA%A7%E5%AE%9A%E4%BB%B7%E6%A8%A1%E5%9E%8Bhttp://www.wikidata.org/wiki/Q848354#sitelinkshttp://en.wikipedia.org/w/index.php?title=Special:UserLogin&returnto=Capital+asset+pricing+model&type=signuphttp://en.wikipedia.org/w/index.php?title=Special:UserLogin&returnto=Capital+asset+pricing+modelhttp://en.wikipedia.org/w/index.php?title=Special:UserLogin&returnto=Capital+asset+pricing+modelhttp://en.wikipedia.org/w/index.php?title=Special:UserLogin&returnto=Capital+asset+pricing+model&type=signuphttp://en.wikipedia.org/wiki/Main_Pagehttp://en.wikipedia.org/wiki/Main_Pagehttp://www.wikidata.org/wiki/Q848354#sitelinkshttp://zh.wikipedia.org/wiki/%E8%B5%84%E6%9C%AC%E8%B5%84%E4%BA%A7%E5%AE%9A%E4%BB%B7%E6%A8%A1%E5%9E%8Bhttp://zh.wikipedia.org/wiki/%E8%B5%84%E6%9C%AC%E8%B5%84%E4%BA%A7%E5%AE%9A%E4%BB%B7%E6%A8%A1%E5%9E%8Bhttp://sv.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://fi.wikipedia.org/wiki/Capital_Asset_Pricing_-mallihttp://sk.wikipedia.org/wiki/Model_oce%C5%88ovania_kapit%C3%A1lov%C3%BDch_akt%C3%ADvhttp://ru.wikipedia.org/wiki/CAPMhttp://pt.wikipedia.org/wiki/Modelo_de_precifica%C3%A7%C3%A3o_de_ativos_financeiroshttp://pl.wikipedia.org/wiki/Capital_Asset_Pricing_Modelhttp://no.wikipedia.org/wiki/Kapitalverdimodellenhttp://ja.wikipedia.org/wiki/%E8%B3%87%E6%9C%AC%E8%B3%87%E7%94%A3%E4%BE%A1%E6%A0%BC%E3%83%A2%E3%83%87%E3%83%ABhttp://nl.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://he.wikipedia.org/wiki/CAPMhttp://it.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://hr.wikipedia.org/wiki/CAPMhttp://ko.wikipedia.org/wiki/%EC%9E%90%EB%B3%B8%EC%9E%90%EC%82%B0_%EA%B0%80%EA%B2%A9%EA%B2%B0%EC%A0%95_%EB%AA%A8%ED%98%95http://ga.wikipedia.org/wiki/Samhail_Phraghs%C3%A1la_S%C3%B3cmhainn%C3%AD_Caipitilhttp://fr.wikipedia.org/wiki/Mod%C3%A8le_d%27%C3%A9valuation_des_actifs_financiershttp://es.wikipedia.org/wiki/Modelo_de_valoraci%C3%B3n_de_activos_financieroshttp://el.wikipedia.org/wiki/%CE%A5%CF%80%CF%8C%CE%B4%CE%B5%CE%B9%CE%B3%CE%BC%CE%B1_%CE%91%CF%80%CE%BF%CF%84%CE%AF%CE%BC%CE%B7%CF%83%CE%B7%CF%82_%CE%A0%CE%B5%CF%81%CE%B9%CE%BF%CF%85%CF%83%CE%B9%CE%B1%CE%BA%CF%8E%CE%BD_%CE%A3%CF%84%CE%BF%CE%B9%CF%87%CE%B5%CE%AF%CF%89%CE%BD_%28CAPM%29http://de.wikipedia.org/wiki/Capital_Asset_Pricing_Modelhttp://cs.wikipedia.org/wiki/CAPMhttp://en.wikipedia.org/wiki/Wikipedia:Contact_ushttp://en.wikipedia.org/wiki/Special:RecentChangeshttp://en.wikipedia.org/wiki/Wikipedia:Community_portalhttp://en.wikipedia.org/wiki/Wikipedia:Abouthttp://en.wikipedia.org/wiki/Help:Contentshttp://donate.wikimedia.org/wiki/Special:FundraiserRedirector?utm_source=donate&utm_medium=sidebar&utm_campaign=C13_en.wikipedia.org&uselang=enhttp://en.wikipedia.org/wiki/Special:Randomhttp://en.wikipedia.org/wiki/Portal:Current_eventshttp://en.wikipedia.org/wiki/Portal:Featured_contenthttp://en.wikipedia.org/wiki/Portal:Contentshttp://en.wikipedia.org/wiki/Main_Pagehttp://en.wikipedia.org/wiki/Talk:Capital_asset_pricing_modelhttp://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=historyhttp://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edithttp://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=1http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Averagehttp://en.wikipedia.org/wiki/Dow_Jones_Industrial_Averagehttp://en.wikipedia.org/wiki/File:CAPM-SML.svghttp://en.wikipedia.org/wiki/Systematic_riskhttp://en.wikipedia.org/wiki/Security_market_linehttp://en.wikipedia.org/wiki/Financial_economicshttp://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economic_Scienceshttp://en.wikipedia.org/wiki/Merton_Millerhttp://en.wikipedia.org/wiki/Merton_Millerhttp://en.wikipedia.org/wiki/Modern_portfolio_theoryhttp://en.wikipedia.org/wiki/Diversification_%28finance%29http://en.wikipedia.org/wiki/Harry_Markowitzhttp://en.wikipedia.org/wiki/Jan_Mossinhttp://en.wikipedia.org/wiki/John_Lintnerhttp://en.wikipedia.org/wiki/William_Forsyth_Sharpehttp://en.wikipedia.org/wiki/Jack_L._Treynorhttp://en.wikipedia.org/wiki/Risk-free_interest_ratehttp://en.wikipedia.org/wiki/Expected_returnhttp://en.wikipedia.org/wiki/Beta_%28finance%29http://en.wikipedia.org/wiki/Market_riskhttp://en.wikipedia.org/wiki/Systematic_riskhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Diversification_%28finance%29http://en.wikipedia.org/wiki/Portfolio_%28finance%29http://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Rate_of_returnhttp://en.wikipedia.org/wiki/Rate_of_returnhttp://en.wikipedia.org/wiki/Finance


2/8


3/8



shows expected return as a function of . The intercept is the nominal risk- free rate available for t

market, while the slope is the market premium, E(Rm) Rf. The securities market line can be

regarded as representing a single-factor model of the asset price, where Beta is exposure to

changes in value of the Market. The equation of the SML is thus:

It is a useful tool in determining if an asset being considered for a portfolio offers a reasonable

expected return for risk. Individual securities are plotted on the SML graph. If the security's expecte

return versus risk is plotted above the SML, it is undervalued since the investor can expect a grea

return for the inherent risk. And a security plotted below the SML is overvalued since the investor

would be accepting less return for the amount of risk assumed.

Once the expected/required rate of return is calculated using CAPM, we can compare th

required rate of return to the asset's estimated rate of return over a specific investment horizon to

determine whether it would be an appropriate investment. To make this comparison, you need an

independent estimate of the return outlook for the security based on either fundamental or techn

analysis techniques, including P/E, M/B etc.

Assuming that the CAPM is correct, an asset is correctly priced when its estimated price is the samas the present value of future cash flows of the asset, discounted at the rate suggested by CAPM

the estimated price is higher than the CAPM valuation, then the asset is undervalued (and

overvalued when the estimated price is below the CAPM valuation).[2] When the asset does not li

on the SML, this could also suggest mis-pricing. Since the expected return of the asset at time i

, a higher expected return than what CAPM suggests indicates th

is too low (the asset is currently undervalued), assuming that at time the asset returns

the CAPM suggested price.[3]

The asset price using CAPM, sometimes called the certainty equivalent pricing formula, is a

linear relationship given by

where is the payoff of the asset or portfolio.[2]

The CAPM returns the asset-appropriate required return or discount ratei.e. the rate at which

future cash flows produced by the asset should be discounted given that asset's relative riskiness.

Betas exceeding one signify more than average "riskiness"; betas below one indicate lower than

average. Thus, a more risky stock will have a higher beta and will be discounted at a higher rate;less sensitive stocks will have lower betas and be discounted at a lower rate. Given the accepted

concave utility function, the CAPM is consistent with intuitioninvestors (should) require a higher

return for holding a more risky asset.

Since beta reflects asset-specific sensitivity to non-diversifiable, i.e. market risk, the market as a

whole, by definition, has a beta of one. Stock market indices are frequently used as local proxies fo

the marketand in that case (by definition) have a beta of one. An investor in a large, diversified

portfolio (such as a mutual fund), therefore, expects performance in line with the market.

Asset pricing [edit]

Asset-specific required return [edit]

Risk and diversification [edit]
http://en.wikipedia.org/w/index.php?title=Certainty_equivalent_pricing_formula&action=edit&redlink=1http://en.wikipedia.org/wiki/Utility_functionhttp://en.wikipedia.org/wiki/Utility_functionhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=3http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=4http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=5http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=5http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=5http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=4http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=3http://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Utility_functionhttp://en.wikipedia.org/w/index.php?title=Certainty_equivalent_pricing_formula&action=edit&redlink=1


4/8



The risk of a portfolio comprises systematic risk, also known as undiversifiable risk, and unsystem

riskwhich is also known as idiosyncratic risk or diversifiable risk. Systematic risk refers to the risk

common to all securitiesi.e. market risk. Unsystematic risk is the risk associated with individual

assets. Unsystematic risk can be diversified away to smaller levels by including a greater number

assets in the portfolio (specific risks "average out"). The same is not possible for systematic risk

within one market. Depending on the market, a portfolio of approximately 30-40 securities in

developed markets such as UK or US will render the portfolio sufficiently diversified such that risk

exposure is limited to systematic risk only. In developing markets a larger number is required, due

the higher asset volatilities.A rational investor should not take on any diversifiable risk, as only non-diversifiable risks are

rewarded within the scope of this model. Therefore, the required return on an asset, that is, the

return that compensates for risk taken, must be linked to its riskiness in a portfolio contexti.e. its

contribution to overall portfolio riskinessas opposed to its "stand alone risk." In the CAPM contex

portfolio risk is represented by higher variance i.e. less predictability. In other words the beta of the

portfolio is the defining factor in rewarding the systematic exposure taken by an investor.

Main article: Efficient frontier

The CAPM assumesthat the risk-return

profile of a portfolio

can be optimizedan

optimal portfolio

displays the lowest

possible level of risk

for its level of return.

Additionally, since

each additional asset

introduced into a

portfolio further

diversifies the portfolio,

the optimal portfolio

must comprise every

asset, (assuming no

trading costs) with each asset value-weighted to achieve the above (assuming that any asset is

infinitely divisible). All such optimal portfolios, i.e., one for each level of return, comprise the efficie

frontier.

Because the unsystematic risk is diversifiable, the total risk of a portfolio can be viewed as beta.

An investor might choose to invest a proportion of his or her wealth in a portfolio of risky assets wi

the remainder in cashearning interest at the risk free rate (or indeed may borrow money to fund

his or her purchase of risky assets in which case there is a negative cash weighting). Here, the rat

of risky assets to risk free asset does not determine overall returnthis relationship is clearly linea

It is thus possible to achieve a particular return in one of two ways:

1. By investing all of one's wealth in a risky portfolio,

2. or by investing a proportion in a risky portfolio and the remainder in cash (either borrowed

invested).

The efficient frontier [edit]

The (Markowitz) efficient frontier. CAL stands for the capital allocation line.

The market portfolio [edit]
http://en.wikipedia.org/wiki/Portfolio_%28finance%29http://en.wikipedia.org/wiki/Systematic_riskhttp://en.wikipedia.org/wiki/Unsystematic_riskhttp://en.wikipedia.org/wiki/Unsystematic_riskhttp://en.wikipedia.org/wiki/Unsystematic_riskhttp://en.wikipedia.org/wiki/Market_riskhttp://en.wikipedia.org/wiki/Market_riskhttp://en.wikipedia.org/wiki/Diversification_%28finance%29http://en.wikipedia.org/wiki/Return_on_investmenthttp://en.wikipedia.org/wiki/Variancehttp://en.wikipedia.org/wiki/Efficient_frontierhttp://en.wikipedia.org/wiki/Infinite_divisibilityhttp://en.wikipedia.org/wiki/Infinite_divisibilityhttp://en.wikipedia.org/wiki/Diversification_%28finance%29http://en.wikipedia.org/wiki/Diversification_%28finance%29http://en.wikipedia.org/wiki/Beta_coefficienthttp://en.wikipedia.org/wiki/Beta_coefficienthttp://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=6http://en.wikipedia.org/wiki/Efficient_frontierhttp://en.wikipedia.org/wiki/Efficient_frontierhttp://en.wikipedia.org/wiki/Capital_allocation_linehttp://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=7http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=7http://en.wikipedia.org/wiki/Capital_allocation_linehttp://en.wikipedia.org/wiki/Efficient_frontierhttp://en.wikipedia.org/wiki/File:Markowitz_frontier.jpghttp://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=6http://en.wikipedia.org/wiki/Beta_coefficienthttp://en.wikipedia.org/wiki/Diversification_%28finance%29http://en.wikipedia.org/wiki/Infinite_divisibilityhttp://en.wikipedia.org/wiki/Efficient_frontierhttp://en.wikipedia.org/wiki/Variancehttp://en.wikipedia.org/wiki/Return_on_investmenthttp://en.wikipedia.org/wiki/Diversification_%28finance%29http://en.wikipedia.org/wiki/Market_riskhttp://en.wikipedia.org/wiki/Unsystematic_riskhttp://en.wikipedia.org/wiki/Unsystematic_riskhttp://en.wikipedia.org/wiki/Systematic_riskhttp://en.wikipedia.org/wiki/Portfolio_%28finance%29


5/8



For a given level of return, however, only one of these portfolios will be optimal (in the sense of

lowest risk). Since the risk free asset is, by definition, uncorrelatedwith any other asset, option 2 w

generally have the lower variance and hence be the more efficient of the two.

This relationship also holds for portfolios along the efficient frontier: a higher return portfolio plus c

is more efficient than a lower return portfolio alone for that lower level of return. For a given risk fr

rate, there is only one optimal portfolio which can be combined with cash to achieve the lowest lev

of risk for any possible return. This is the market portfolio.

All investors:[4]

This section does not cite any references or sources. Please

help improve this section by adding citations to reliable sources.

Unsourced material may be challenged and removed. (July 2010)

1. Aim to maximize economic utilities.

2. Are rational and risk-averse.

3. Are broadly diversified across a range of investments.

4. Are price takers, i.e., they cannot influence prices.

5. Can lend and borrow unlimited amounts under the risk free rate of interest.6. Trade without transaction or taxation costs.

7. Deal with securities that are all highly divisible into small parcels.

8. Assume all information is available at the same time to all investors.

Further, the model assumes that standard deviation of past returns is a perfect proxy for the future

risk associated with a given security.[citation needed]

The model assumes that the variance of returns is an adequate measurement of risk. This wo

be implied by the assumption that returns are normally distributed, or indeed are distributed in

two-parameter way, but for general return distributions other risk measures (like coherent risk

measures) will reflect the active and potential shareholders' preferences more adequately. Inde

risk in financial investments is not variance in itself, rather it is the probability of losing: it is

asymmetric in nature.

The model assumes that all active and potential shareholders have access to the same

information and agree about the risk and expected return of all assets (homogeneous

expectations assumption).[citation needed]

The model assumes that the probability beliefs of active and potential shareholders match the

true distribution of returns. A different possibility is that active and potential shareholders'

expectations are biased, causing market prices to be informationally inefficient. This possibility i

studied in the field ofbehavioral finance, which uses psychological assumptions to providealternatives to the CAPM such as the overconfidence-based asset pricing model of Kent Danie

David Hirshleifer, and Avanidhar Subrahmanyam (2001).[5]

The model does not appear to adequately explain the variation in stock returns. Empirical stud

show that low beta stocks may offer higher returns than the model would predict. Some data to

this effect was presented as early as a 1969 conference in Buffalo, New York in a paper by

Fischer Black, Michael J ensen, and Myron Scholes. Either that fact is itself rational (which save

the efficient-market hypothesis but makes CAPM wrong), or it is irrational (which saves CAPM,

but makes the EMH wrong indeed, this possibility makes volatility arbitrage a strategy for

reliably beating the market).[citation needed]

Assumptions of CAPM [edit]

Problems of CAPM [edit]
http://en.wikipedia.org/wiki/Correlationhttp://en.wikipedia.org/wiki/Correlationhttp://en.wikipedia.org/wiki/Market_portfoliohttp://en.wikipedia.org/wiki/Wikipedia:Citing_sourceshttp://en.wikipedia.org/wiki/Wikipedia:Verifiabilityhttp://en.wikipedia.org/wiki/Help:Introduction_to_referencing/1http://en.wikipedia.org/wiki/Wikipedia:Verifiability#Burden_of_evidencehttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Coherent_risk_measurehttp://en.wikipedia.org/wiki/Coherent_risk_measurehttp://en.wikipedia.org/wiki/Coherent_risk_measurehttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Behavioral_financehttp://en.wikipedia.org/wiki/Behavioral_financehttp://en.wikipedia.org/wiki/David_Hirshleiferhttp://en.wikipedia.org/wiki/David_Hirshleiferhttp://en.wikipedia.org/wiki/Buffalo,_New_Yorkhttp://en.wikipedia.org/wiki/Fischer_Blackhttp://en.wikipedia.org/wiki/Michael_Jensenhttp://en.wikipedia.org/wiki/Myron_Scholeshttp://en.wikipedia.org/wiki/Efficient-market_hypothesishttp://en.wikipedia.org/wiki/Volatility_arbitragehttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=8http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=9http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=9http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=8http://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Volatility_arbitragehttp://en.wikipedia.org/wiki/Efficient-market_hypothesishttp://en.wikipedia.org/wiki/Myron_Scholeshttp://en.wikipedia.org/wiki/Michael_Jensenhttp://en.wikipedia.org/wiki/Fischer_Blackhttp://en.wikipedia.org/wiki/Buffalo,_New_Yorkhttp://en.wikipedia.org/wiki/David_Hirshleiferhttp://en.wikipedia.org/wiki/Behavioral_financehttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Coherent_risk_measurehttp://en.wikipedia.org/wiki/Coherent_risk_measurehttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Verifiability#Burden_of_evidencehttp://en.wikipedia.org/wiki/Help:Introduction_to_referencing/1http://en.wikipedia.org/wiki/Wikipedia:Verifiabilityhttp://en.wikipedia.org/wiki/Wikipedia:Citing_sourceshttp://en.wikipedia.org/wiki/File:Question_book-new.svghttp://en.wikipedia.org/wiki/Market_portfoliohttp://en.wikipedia.org/wiki/Correlation


6/8



The model assumes that given a certain expected return, active and potential shareholders wil

prefer lower risk (lower variance) to higher risk and conversely given a certain level of risk will

prefer higher returns to lower ones. It does not allow for active and potential shareholders who

will accept lower returns for higher risk. Casino gamblers pay to take on more risk, and it is

possible that some stock traders will pay for risk as well.[citation needed]

The model assumes that there are no taxes or transaction costs, although this assumption may

be relaxed with more complicated versions of the model.[citation needed]

The market portfolio consists of all assets in all markets, where each asset is weighted by its

market capitalization. This assumes no preference between markets and assets for individualactive and potential shareholders, and that active and potential shareholders choose assets sol

as a function of their risk-return profile. It also assumes that all assets are infinitely divisible as

the amount which may be held or transacted.[citation needed]

The market portfolio should in theory include all types of assets that are held by anyone as an

investment (including works of art, real estate, human capital...) In practice, such a market

portfolio is unobservable and people usually substitute a stock index as a proxy for the true

market portfolio. Unfortunately, it has been shown that this substitution is not innocuous and ca

lead to false inferences as to the validity of the CAPM, and it has been said that due to the

inobservability of the true market portfolio, the CAPM might not be empirically testable. This wa

presented in greater depth in a paper by Richard Roll in 1977, and is generally referred to as

Roll's critique.[6]

The model assumes economic agents optimise over a short-term horizon, and in fact investors

with longer-term outlooks would optimally choose long-term inflation-linked bonds instead of sh

term rates as this would be more risk-free asset to such an agent.[7][8]

The model assumes just two dates, so that there is no opportunity to consume and rebalance

portfolios repeatedly over time. The basic insights of the model are extended and generalized i

the intertemporal CAPM (ICAPM) of Robert Merton, [9] and the consumption CAPM (CCAPM)

Douglas Breeden and Mark Rubinstein.[10]

CAPM assumes that all active and potential shareholders will consider all of their assets and

optimize one portfolio. This is in sharp contradiction with portfolios that are held by individual

shareholders: humans tend to have fragmented portfolios or, rather, multiple portfolios: for eachgoal one portfolio see behavioral portfolio theory[11] and Maslowian Portfolio Theory.[12]

Empirical tests show market anomalies like the size and value effect that cannot be explained

the CAPM.[13] For details see the FamaFrench three-factor model.[14]

Arbitrage pricing theory(APT)

Single-index model

Consumption beta (CCAPM)

Efficient market hypothesis

FamaFrench three-factor modelHamada's equation

Intertemporal CAPM (ICAPM)

Conditional CAPM

Modern portfolio theory

Risk

Risk management tools

Roll's critique

Valuation (finance)

See also [edit]
http://en.wikipedia.org/wiki/Problem_gamblinghttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Richard_Rollhttp://en.wikipedia.org/wiki/Roll%27s_critiquehttp://en.wikipedia.org/wiki/Roll%27s_critiquehttp://en.wikipedia.org/wiki/Intertemporal_CAPMhttp://en.wikipedia.org/wiki/CCAPMhttp://en.wikipedia.org/wiki/Behavioral_portfolio_theoryhttp://en.wikipedia.org/wiki/Maslowian_Portfolio_Theoryhttp://en.wikipedia.org/wiki/Fama%E2%80%93French_three-factor_modelhttp://en.wikipedia.org/wiki/Fama%E2%80%93French_three-factor_modelhttp://en.wikipedia.org/wiki/Arbitrage_pricing_theoryhttp://en.wikipedia.org/wiki/Arbitrage_pricing_theoryhttp://en.wikipedia.org/wiki/Single-index_modelhttp://en.wikipedia.org/wiki/Consumption_betahttp://en.wikipedia.org/wiki/Efficient_market_hypothesishttp://en.wikipedia.org/wiki/Fama%E2%80%93French_three-factor_modelhttp://en.wikipedia.org/wiki/Hamada%27s_equationhttp://en.wikipedia.org/wiki/Intertemporal_CAPMhttp://en.wikipedia.org/w/index.php?title=Conditional_CAPM&action=edit&redlink=1http://en.wikipedia.org/wiki/Modern_portfolio_theoryhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Risk_management_toolshttp://en.wikipedia.org/wiki/Roll%27s_critiquehttp://en.wikipedia.org/wiki/Valuation_%28finance%29http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=10http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=10http://en.wikipedia.org/wiki/Valuation_%28finance%29http://en.wikipedia.org/wiki/Roll%27s_critiquehttp://en.wikipedia.org/wiki/Risk_management_toolshttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Modern_portfolio_theoryhttp://en.wikipedia.org/w/index.php?title=Conditional_CAPM&action=edit&redlink=1http://en.wikipedia.org/wiki/Intertemporal_CAPMhttp://en.wikipedia.org/wiki/Hamada%27s_equationhttp://en.wikipedia.org/wiki/Fama%E2%80%93French_three-factor_modelhttp://en.wikipedia.org/wiki/Efficient_market_hypothesishttp://en.wikipedia.org/wiki/Consumption_betahttp://en.wikipedia.org/wiki/Single-index_modelhttp://en.wikipedia.org/wiki/Arbitrage_pricing_theoryhttp://en.wikipedia.org/wiki/Fama%E2%80%93French_three-factor_modelhttp://en.wikipedia.org/wiki/Maslowian_Portfolio_Theoryhttp://en.wikipedia.org/wiki/Behavioral_portfolio_theoryhttp://en.wikipedia.org/wiki/CCAPMhttp://en.wikipedia.org/wiki/Intertemporal_CAPMhttp://en.wikipedia.org/wiki/Roll%27s_critiquehttp://en.wikipedia.org/wiki/Richard_Rollhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Problem_gambling


7/8



1. ^ French, Craig W. (2003). "The Treynor Capital Asset Pricing Model".Journal of Investment

Management1 (2): 6072. SSRN447580 .

2. ^ab Luenberger, David (1997). Investment Science. Oxford University Press. ISBN978-0-19-51080

3. ^ Bodie, Z.; Kane, A.; Marcus, A. J . (2008). Investments (7th International ed.). Boston: McGraw-Hill.

p. 303. ISBN0-07-125916-3.

4. ^ Arnold, Glen (2005). Corporate financial management (3. ed. ed.). Harlow [u.a.]: Financial

Times/Prentice Hall. p. 354.

5. ^ Daniel, Kent D.; Hirshleifer, David; Subrahmanyam, Avanidhar (2001). "Overconfidence, Arbitrage,and Equilibrium Asset Pricing". Journal of Finance56 (3): 921965. doi:10.1111/0022-1082.00350

6. ^ Roll, R. (1977). "A Critique of the Asset Pricing Theorys Tests". Journal of Financial Economics4:

129176. doi:10.1016/0304-405X(77)90009-5 .

7. ^ http://ciber.fuqua.duke.edu/~charvey/Teaching/BA453_2006/Campbell_Viceira.pdf

8. ^ Campbell, J & Vicera, M "Strategic Asset Allocation: Portfolio Choice for Long Term Investors".

Clarendon Lectures in Economics, 2002. ISBN 978-0-19-829694-2

9. ^ Merton, R.C. (1973). "An Intertemporal Capital Asset Pricing Model". Econometrica41 (5): 867887

10. ^ Breeden, Douglas (September, 1979). "An intertemporal asset pricing model with stochastic

consumption and investment opportunities". Journal of Financial Economics7 (3): 265296.

doi:10.1016/0304-405X(79)90016-3 .

11. ^ Shefrin, H.; Statman, M. (2000). "Behavioral Portfolio Theory". Journal of Financial and QuantitativeAnalysis35 (2): 127151. doi:10.2307/2676187 .

12. ^ De Brouwer, Ph. (2009). "Maslowian Portfolio Theory: An alternative formulation of the Behavioural

Portfolio Theory". Journal of Asset Management9 (6): 359365. doi:10.1057/jam.2008.35 .

13. ^ Fama, Eugene F.; French, Kenneth R. (1993). "Common Risk Factors in the Returns on Stocks an

Bonds". Journal of Financial Economics33 (1): 356. doi:10.1016/0304-405X(93)90023-5 .

14. ^ Fama, Eugene F.; French, Kenneth R. (1992). "The Cross-Section of Expected Stock Returns".

Journal of Finance47 (2): 427465. doi:10.2307/2329112 .

Black, Fischer., Michael C. J ensen, and Myron Scholes (1972). The Capital Asset Pricing Mode

Some Empirical Tests, pp. 79121 in M. J ensen ed., Studies in the Theory of Capital Markets.New York: Praeger Publishers.

Fama, Eugene F. (1968). Risk, Return and Equilibrium: Some Clarifying Comments. J ournal of

Finance Vol. 23, No. 1, pp. 2940.

Fama, Eugene F. and Kenneth French (1992). The Cross-Section of Expected Stock Returns.

J ournal of Finance, J une 1992, 427-466.

French, Craig W. (2003). The Treynor Capital Asset Pricing Model, J ournal of Investment

Management, Vol. 1, No. 2, pp. 6072. Available at http://www.joim.com/

French, Craig W. (2002). Jack Treynor's 'Toward a Theory of Market Value of Risky Assets'

(December). Available at http://ssrn.com/abstract=628187

Lintner, J ohn (1965). The valuation of risk assets and the selection of risky investments in stocportfolios and capital budgets, Review of Economics and Statistics, 47 (1), 13-37.

Markowitz, Harry M. (1999). The early history of portfolio theory: 1600-1960, Financial Analysts

J ournal, Vol. 55, No. 4

Mehrling, Perry (2005). Fischer Black and the Revolutionary Idea of Finance. Hoboken: J ohn

Wiley & Sons, Inc.

Mossin, J an. (1966). Equilibrium in a Capital Asset Market, Econometrica, Vol. 34, No. 4,

pp. 768783.

Ross, Stephen A. (1977). The Capital Asset Pricing Model (CAPM), Short-sale Restrictions and

Related Issues, J ournal of Finance, 32 (177)

References [edit]

Bibliography [edit]
http://en.wikipedia.org/wiki/Social_Science_Research_Networkhttp://en.wikipedia.org/wiki/Social_Science_Research_Networkhttp://ssrn.com/abstract=447580http://en.wikipedia.org/wiki/International_Standard_Book_Numberhttp://en.wikipedia.org/wiki/Special:BookSources/978-0-19-510809-5http://en.wikipedia.org/wiki/International_Standard_Book_Numberhttp://en.wikipedia.org/wiki/International_Standard_Book_Numberhttp://en.wikipedia.org/wiki/Special:BookSources/0-07-125916-3http://en.wikipedia.org/wiki/Special:BookSources/0-07-125916-3http://en.wikipedia.org/wiki/Digital_object_identifierhttp://en.wikipedia.org/wiki/Digital_object_identifierhttp://dx.doi.org/10.1111%2F0022-1082.00350http://en.wikipedia.org/wiki/Digital_object_identifierhttp://dx.doi.org/10.1016%2F0304-405X%2877%2990009-5http://ciber.fuqua.duke.edu/~charvey/Teaching/BA453_2006/Campbell_Viceira.pdfhttp://en.wikipedia.org/wiki/Special:BookSources/9780198296942http://en.wikipedia.org/wiki/Digital_object_identifierhttp://en.wikipedia.org/wiki/Digital_object_identifierhttp://dx.doi.org/10.1016%2F0304-405X%2879%2990016-3http://en.wikipedia.org/wiki/Digital_object_identifierhttp://en.wikipedia.org/wiki/Digital_object_identifierhttp://dx.doi.org/10.2307%2F2676187http://en.wikipedia.org/wiki/Digital_object_identifierhttp://dx.doi.org/10.1057%2Fjam.2008.35http://en.wikipedia.org/wiki/Digital_object_identifierhttp://en.wikipedia.org/wiki/Digital_object_identifierhttp://dx.doi.org/10.1016%2F0304-405X%2893%2990023-5http://en.wikipedia.org/wiki/Digital_object_identifierhttp://dx.doi.org/10.2307%2F2329112http://www.joim.com/http://ssrn.com/abstract=628187http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=11http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=12http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=12http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=11http://ssrn.com/abstract=628187http://www.joim.com/http://dx.doi.org/10.2307%2F2329112http://en.wikipedia.org/wiki/Digital_object_identifierhttp://dx.doi.org/10.1016%2F0304-405X%2893%2990023-5http://en.wikipedia.org/wiki/Digital_object_identifierhttp://dx.doi.org/10.1057%2Fjam.2008.35http://en.wikipedia.org/wiki/Digital_object_identifierhttp://dx.doi.org/10.2307%2F2676187http://en.wikipedia.org/wiki/Digital_object_identifierhttp://dx.doi.org/10.1016%2F0304-405X%2879%2990016-3http://en.wikipedia.org/wiki/Digital_object_identifierhttp://en.wikipedia.org/wiki/Special:BookSources/9780198296942http://ciber.fuqua.duke.edu/~charvey/Teaching/BA453_2006/Campbell_Viceira.pdfhttp://dx.doi.org/10.1016%2F0304-405X%2877%2990009-5http://en.wikipedia.org/wiki/Digital_object_identifierhttp://dx.doi.org/10.1111%2F0022-1082.00350http://en.wikipedia.org/wiki/Digital_object_identifierhttp://en.wikipedia.org/wiki/Special:BookSources/0-07-125916-3http://en.wikipedia.org/wiki/International_Standard_Book_Numberhttp://en.wikipedia.org/wiki/Special:BookSources/978-0-19-510809-5http://en.wikipedia.org/wiki/International_Standard_Book_Numberhttp://ssrn.com/abstract=447580http://en.wikipedia.org/wiki/Social_Science_Research_Network


8/8


Privacy policy About Wikipedia Disclaimers Contact Wikipedia Mobile view

This page was last modified on 12 June 2013 at 21:55.

Text is available under the Creative Commons Attribution-ShareAlike License; additional terms may apply. By using thsite, you agree to theTerms of Useand Privacy Policy.Wikipediais a registered trademark of the Wikimedia Foundation, Inc., a non-profit organization.

[hideVTE

Rubinstein, Mark (2006). A History of the Theory of Investments. Hoboken: J ohn Wiley & Sons

Inc.

Sharpe, William F. (1964). Capital asset prices: A theory of market equilibrium under conditions

risk, J ournal of Finance, 19 (3), 425-442

Stone, Bernell K. (1970) Risk, Return, and Equilibrium: A General Single-Period Theory of Asse

Selection and Capital-Market Equilibrium. Cambridge: MIT Press.

Tobin, J ames (1958). Liquidity preference as behavior towards risk , The Review of Economic

Studies, 25

Treynor, J ack L. (1961). Market Value, Time, and Risk. Unpublished manuscript.Treynor, J ack L. (1962). Toward a Theory of Market Value of Risky Assets. Unpublished

manuscript. A final version was published in 1999, in Asset Pricing and Portfolio Performance:

Models, Strategy and Performance Metrics. Robert A. Korajczyk (editor) London: Risk Books,

pp. 1522.

Mullins, David W. (1982). Does the capital asset pricing model work?, Harvard Business Revie

J anuaryFebruary 1982, 105-113.

Multiasset efficient frontier

Financial markets

Types ofstocks Common stockGolden sharePreferred stock Restricted stock Tracking stock

Share capital Authorised capitalIssued sharesShares outstanding Treasury stock

ParticipantsBroker-dealerFloor brokerFloor traderInvestor Market makerProprietary trader

Quantitative analystStock trader

ExchangesElectronic communication networkStock exchange opening times Over-the-counter

List of stock exchangesMultilateral trading facility

Stock valuation

AlphaArbitrage pricing theory BetaBook value Capital asset pricing model

Dividend yieldEarnings per shareEarnings yieldDividend discount model

Security characteristic lineSecurity market lineT-Model

Trading theories

and strategies

Algorithmic tradingBuy and holdConcentrated stock Contrarian investing Day trading

Efficient-market hypothesisFundamental analysisGrowth stockMarket timing Modern portfolio theoryMomentum investing Mosaic theoryPairs trade

Post-modern portfolio theoryRandom walk hypothesisStyle investing Swing trading

Technical analysisTrend following

Related terms

Block tradeCross listingDark liquidity Dividend Dual-listed companyDuPont analysis

Flight-to-qualityHaircut Initial public offeringMarginMarket anomaly

Market capitalizationMarket depthMarket manipulation Market trendMean reversion

MomentumOpen outcry Public floatPublic offeringRallyReverse stock split

Returns-based style analysisShort sellingSlippageSpeculationStock dilution

Stock splitTrade Uptick ruleVolatilityVoting interest Stock market index

Categories: Finance theories Mathematical finance Financial markets Portfolio theories

External links [edit]
http://wikimediafoundation.org/wiki/Privacy_policyhttp://en.wikipedia.org/wiki/Wikipedia:Abouthttp://en.wikipedia.org/wiki/Wikipedia:General_disclaimerhttp://en.wikipedia.org/wiki/Wikipedia:Contact_ushttp://en.m.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://en.wikipedia.org/wiki/Wikipedia:Text_of_Creative_Commons_Attribution-ShareAlike_3.0_Unported_Licensehttp://en.wikipedia.org/wiki/Wikipedia:Text_of_Creative_Commons_Attribution-ShareAlike_3.0_Unported_Licensehttp://wikimediafoundation.org/wiki/Terms_of_Usehttp://wikimediafoundation.org/wiki/Terms_of_Usehttp://wikimediafoundation.org/wiki/Privacy_policyhttp://wikimediafoundation.org/wiki/Privacy_policyhttp://www.wikimediafoundation.org/http://www.wikimediafoundation.org/http://en.wikipedia.org/wiki/Template:Financial_markets_navigationhttp://en.wikipedia.org/wiki/Template:Financial_markets_navigationhttp://en.wikipedia.org/wiki/Template_talk:Financial_markets_navigationhttp://en.wikipedia.org/wiki/Template_talk:Financial_markets_navigationhttp://en.wikipedia.org/w/index.php?title=Template:Financial_markets_navigation&action=edithttp://en.wikipedia.org/w/index.php?title=Template:Financial_markets_navigation&action=edithttp://www.duke.edu/~charvey/frontier/frontier.htmlhttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Common_stockhttp://en.wikipedia.org/wiki/Common_stockhttp://en.wikipedia.org/wiki/Golden_sharehttp://en.wikipedia.org/wiki/Golden_sharehttp://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Restricted_stockhttp://en.wikipedia.org/wiki/Tracking_stockhttp://en.wikipedia.org/wiki/Tracking_stockhttp://en.wikipedia.org/wiki/Share_capitalhttp://en.wikipedia.org/wiki/Authorised_capitalhttp://en.wikipedia.org/wiki/Authorised_capitalhttp://en.wikipedia.org/wiki/Issued_shareshttp://en.wikipedia.org/wiki/Issued_shareshttp://en.wikipedia.org/wiki/Shares_outstandinghttp://en.wikipedia.org/wiki/Treasury_stockhttp://en.wikipedia.org/wiki/Treasury_stockhttp://en.wikipedia.org/wiki/Broker-dealerhttp://en.wikipedia.org/wiki/Broker-dealerhttp://en.wikipedia.org/wiki/Floor_brokerhttp://en.wikipedia.org/wiki/Floor_brokerhttp://en.wikipedia.org/wiki/Floor_traderhttp://en.wikipedia.org/wiki/Floor_traderhttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Market_makerhttp://en.wikipedia.org/wiki/Market_makerhttp://en.wikipedia.org/wiki/Proprietary_traderhttp://en.wikipedia.org/wiki/Proprietary_traderhttp://en.wikipedia.org/wiki/Quantitative_analysthttp://en.wikipedia.org/wiki/Quantitative_analysthttp://en.wikipedia.org/wiki/Stock_traderhttp://en.wikipedia.org/wiki/Stock_traderhttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Electronic_communication_networkhttp://en.wikipedia.org/wiki/Electronic_communication_networkhttp://en.wikipedia.org/wiki/List_of_stock_exchange_opening_timeshttp://en.wikipedia.org/wiki/Over-the-counter_%28finance%29http://en.wikipedia.org/wiki/Over-the-counter_%28finance%29http://en.wikipedia.org/wiki/List_of_stock_exchangeshttp://en.wikipedia.org/wiki/List_of_stock_exchangeshttp://en.wikipedia.org/wiki/Multilateral_trading_facilityhttp://en.wikipedia.org/wiki/Multilateral_trading_facilityhttp://en.wikipedia.org/wiki/Stock_valuationhttp://en.wikipedia.org/wiki/Alpha_%28investment%29http://en.wikipedia.org/wiki/Alpha_%28investment%29http://en.wikipedia.org/wiki/Arbitrage_pricing_theoryhttp://en.wikipedia.org/wiki/Beta_%28finance%29http://en.wikipedia.org/wiki/Beta_%28finance%29http://en.wikipedia.org/wiki/Book_valuehttp://en.wikipedia.org/wiki/Dividend_yieldhttp://en.wikipedia.org/wiki/Dividend_yieldhttp://en.wikipedia.org/wiki/Earnings_per_sharehttp://en.wikipedia.org/wiki/Earnings_per_sharehttp://en.wikipedia.org/wiki/Earnings_yieldhttp://en.wikipedia.org/wiki/Earnings_yieldhttp://en.wikipedia.org/wiki/Dividend_discount_modelhttp://en.wikipedia.org/wiki/Dividend_discount_modelhttp://en.wikipedia.org/wiki/Security_characteristic_linehttp://en.wikipedia.org/wiki/Security_characteristic_linehttp://en.wikipedia.org/wiki/Security_market_linehttp://en.wikipedia.org/wiki/Security_market_linehttp://en.wikipedia.org/wiki/T-Modelhttp://en.wikipedia.org/wiki/T-Modelhttp://en.wikipedia.org/wiki/Trading_strategyhttp://en.wikipedia.org/wiki/Algorithmic_tradinghttp://en.wikipedia.org/wiki/Algorithmic_tradinghttp://en.wikipedia.org/wiki/Buy_and_holdhttp://en.wikipedia.org/wiki/Buy_and_holdhttp://en.wikipedia.org/wiki/Concentrated_stockhttp://en.wikipedia.org/wiki/Contrarian_investinghttp://en.wikipedia.org/wiki/Day_tradinghttp://en.wikipedia.org/wiki/Day_tradinghttp://en.wikipedia.org/wiki/Efficient-market_hypothesishttp://en.wikipedia.org/wiki/Efficient-market_hypothesishttp://en.wikipedia.org/wiki/Fundamental_analysishttp://en.wikipedia.org/wiki/Fundamental_analysishttp://en.wikipedia.org/wiki/Growth_stockhttp://en.wikipedia.org/wiki/Growth_stockhttp://en.wikipedia.org/wiki/Market_timinghttp://en.wikipedia.org/wiki/Modern_portfolio_theoryhttp://en.wikipedia.org/wiki/Modern_portfolio_theoryhttp://en.wikipedia.org/wiki/Momentum_investinghttp://en.wikipedia.org/wiki/Mosaic_theory_%28investments%29http://en.wikipedia.org/wiki/Mosaic_theory_%28investments%29http://en.wikipedia.org/wiki/Pairs_tradehttp://en.wikipedia.org/wiki/Post-modern_portfolio_theoryhttp://en.wikipedia.org/wiki/Post-modern_portfolio_theoryhttp://en.wikipedia.org/wiki/Random_walk_hypothesishttp://en.wikipedia.org/wiki/Random_walk_hypothesishttp://en.wikipedia.org/wiki/Style_investinghttp://en.wikipedia.org/wiki/Swing_tradinghttp://en.wikipedia.org/wiki/Swing_tradinghttp://en.wikipedia.org/wiki/Technical_analysishttp://en.wikipedia.org/wiki/Technical_analysishttp://en.wikipedia.org/wiki/Trend_followinghttp://en.wikipedia.org/wiki/Block_tradehttp://en.wikipedia.org/wiki/Block_tradehttp://en.wikipedia.org/wiki/Cross_listinghttp://en.wikipedia.org/wiki/Cross_listinghttp://en.wikipedia.org/wiki/Dark_liquidityhttp://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Dual-listed_companyhttp://en.wikipedia.org/wiki/Dual-listed_companyhttp://en.wikipedia.org/wiki/DuPont_analysishttp://en.wikipedia.org/wiki/DuPont_analysishttp://en.wikipedia.org/wiki/Flight-to-qualityhttp://en.wikipedia.org/wiki/Flight-to-qualityhttp://en.wikipedia.org/wiki/Haircut_%28finance%29http://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Margin_%28finance%29http://en.wikipedia.org/wiki/Margin_%28finance%29http://en.wikipedia.org/wiki/Market_anomalyhttp://en.wikipedia.org/wiki/Market_anomalyhttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Market_depthhttp://en.wikipedia.org/wiki/Market_depthhttp://en.wikipedia.org/wiki/Market_manipulationhttp://en.wikipedia.org/wiki/Market_trendhttp://en.wikipedia.org/wiki/Market_trendhttp://en.wikipedia.org/wiki/Mean_reversion_%28finance%29http://en.wikipedia.org/wiki/Momentum_%28finance%29http://en.wikipedia.org/wiki/Momentum_%28finance%29http://en.wikipedia.org/wiki/Open_outcryhttp://en.wikipedia.org/wiki/Public_floathttp://en.wikipedia.org/wiki/Public_floathttp://en.wikipedia.org/wiki/Public_offeringhttp://en.wikipedia.org/wiki/Public_offeringhttp://en.wikipedia.org/wiki/Rally_%28stock_market%29http://en.wikipedia.org/wiki/Rally_%28stock_market%29http://en.wikipedia.org/wiki/Reverse_stock_splithttp://en.wikipedia.org/wiki/Reverse_stock_splithttp://en.wikipedia.org/wiki/Returns-based_style_analysishttp://en.wikipedia.org/wiki/Returns-based_style_analysishttp://en.wikipedia.org/wiki/Short_sellinghttp://en.wikipedia.org/wiki/Short_sellinghttp://en.wikipedia.org/wiki/Slippage_%28finance%29http://en.wikipedia.org/wiki/Slippage_%28finance%29http://en.wikipedia.org/wiki/Speculationhttp://en.wikipedia.org/wiki/Speculationhttp://en.wikipedia.org/wiki/Stock_dilutionhttp://en.wikipedia.org/wiki/Stock_dilutionhttp://en.wikipedia.org/wiki/Stock_splithttp://en.wikipedia.org/wiki/Stock_splithttp://en.wikipedia.org/wiki/Trade_%28financial_instrument%29http://en.wikipedia.org/wiki/Uptick_rulehttp://en.wikipedia.org/wiki/Uptick_rulehttp://en.wikipedia.org/wiki/Volatility_%28finance%29http://en.wikipedia.org/wiki/Volatility_%28finance%29http://en.wikipedia.org/wiki/Voting_interesthttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/Help:Categorieshttp://en.wikipedia.org/wiki/Category:Finance_theorieshttp://en.wikipedia.org/wiki/Category:Mathematical_financehttp://en.wikipedia.org/wiki/Category:Financial_marketshttp://en.wikipedia.org/wiki/Category:Portfolio_theorieshttp://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=13http://en.wikipedia.org/w/index.php?title=Capital_asset_pricing_model&action=edit&section=13http://en.wikipedia.org/wiki/Category:Portfolio_theorieshttp://en.wikipedia.org/wiki/Category:Financial_marketshttp://en.wikipedia.org/wiki/Category:Mathematical_financehttp://en.wikipedia.org/wiki/Category:Finance_theorieshttp://en.wikipedia.org/wiki/Help:Categorieshttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/Voting_interesthttp://en.wikipedia.org/wiki/Volatility_%28finance%29http://en.wikipedia.org/wiki/Uptick_rulehttp://en.wikipedia.org/wiki/Trade_%28financial_instrument%29http://en.wikipedia.org/wiki/Stock_splithttp://en.wikipedia.org/wiki/Stock_dilutionhttp://en.wikipedia.org/wiki/Speculationhttp://en.wikipedia.org/wiki/Slippage_%28finance%29http://en.wikipedia.org/wiki/Short_sellinghttp://en.wikipedia.org/wiki/Returns-based_style_analysishttp://en.wikipedia.org/wiki/Reverse_stock_splithttp://en.wikipedia.org/wiki/Rally_%28stock_market%29http://en.wikipedia.org/wiki/Public_offeringhttp://en.wikipedia.org/wiki/Public_floathttp://en.wikipedia.org/wiki/Open_outcryhttp://en.wikipedia.org/wiki/Momentum_%28finance%29http://en.wikipedia.org/wiki/Mean_reversion_%28finance%29http://en.wikipedia.org/wiki/Market_trendhttp://en.wikipedia.org/wiki/Market_manipulationhttp://en.wikipedia.org/wiki/Market_depthhttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Market_anomalyhttp://en.wikipedia.org/wiki/Margin_%28finance%29http://en.wikipedia.org/wiki/Initial_public_offeringhttp://en.wikipedia.org/wiki/Haircut_%28finance%29http://en.wikipedia.org/wiki/Flight-to-qualityhttp://en.wikipedia.org/wiki/DuPont_analysishttp://en.wikipedia.org/wiki/Dual-listed_companyhttp://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Dark_liquidityhttp://en.wikipedia.org/wiki/Cross_listinghttp://en.wikipedia.org/wiki/Block_tradehttp://en.wikipedia.org/wiki/Trend_followinghttp://en.wikipedia.org/wiki/Technical_analysishttp://en.wikipedia.org/wiki/Swing_tradinghttp://en.wikipedia.org/wiki/Style_investinghttp://en.wikipedia.org/wiki/Random_walk_hypothesishttp://en.wikipedia.org/wiki/Post-modern_portfolio_theoryhttp://en.wikipedia.org/wiki/Pairs_tradehttp://en.wikipedia.org/wiki/Mosaic_theory_%28investments%29http://en.wikipedia.org/wiki/Momentum_investinghttp://en.wikipedia.org/wiki/Modern_portfolio_theoryhttp://en.wikipedia.org/wiki/Market_timinghttp://en.wikipedia.org/wiki/Growth_stockhttp://en.wikipedia.org/wiki/Fundamental_analysishttp://en.wikipedia.org/wiki/Efficient-market_hypothesishttp://en.wikipedia.org/wiki/Day_tradinghttp://en.wikipedia.org/wiki/Contrarian_investinghttp://en.wikipedia.org/wiki/Concentrated_stockhttp://en.wikipedia.org/wiki/Buy_and_holdhttp://en.wikipedia.org/wiki/Algorithmic_tradinghttp://en.wikipedia.org/wiki/Trading_strategyhttp://en.wikipedia.org/wiki/T-Modelhttp://en.wikipedia.org/wiki/Security_market_linehttp://en.wikipedia.org/wiki/Security_characteristic_linehttp://en.wikipedia.org/wiki/Dividend_discount_modelhttp://en.wikipedia.org/wiki/Earnings_yieldhttp://en.wikipedia.org/wiki/Earnings_per_sharehttp://en.wikipedia.org/wiki/Dividend_yieldhttp://en.wikipedia.org/wiki/Book_valuehttp://en.wikipedia.org/wiki/Beta_%28finance%29http://en.wikipedia.org/wiki/Arbitrage_pricing_theoryhttp://en.wikipedia.org/wiki/Alpha_%28investment%29http://en.wikipedia.org/wiki/Stock_valuationhttp://en.wikipedia.org/wiki/Multilateral_trading_facilityhttp://en.wikipedia.org/wiki/List_of_stock_exchangeshttp://en.wikipedia.org/wiki/Over-the-counter_%28finance%29http://en.wikipedia.org/wiki/List_of_stock_exchange_opening_timeshttp://en.wikipedia.org/wiki/Electronic_communication_networkhttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_traderhttp://en.wikipedia.org/wiki/Quantitative_analysthttp://en.wikipedia.org/wiki/Proprietary_traderhttp://en.wikipedia.org/wiki/Market_makerhttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Floor_traderhttp://en.wikipedia.org/wiki/Floor_brokerhttp://en.wikipedia.org/wiki/Broker-dealerhttp://en.wikipedia.org/wiki/Treasury_stockhttp://en.wikipedia.org/wiki/Shares_outstandinghttp://en.wikipedia.org/wiki/Issued_shareshttp://en.wikipedia.org/wiki/Authorised_capitalhttp://en.wikipedia.org/wiki/Share_capitalhttp://en.wikipedia.org/wiki/Tracking_stockhttp://en.wikipedia.org/wiki/Restricted_stockhttp://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Golden_sharehttp://en.wikipedia.org/wiki/Common_stockhttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Financial_markethttp://www.duke.edu/~charvey/frontier/frontier.htmlhttp://en.wikipedia.org/w/index.php?title=Template:Financial_markets_navigation&action=edithttp://en.wikipedia.org/wiki/Template_talk:Financial_markets_navigationhttp://en.wikipedia.org/wiki/Template:Financial_markets_navigationhttp://www.wikimediafoundation.org/http://wikimediafoundation.org/wiki/Privacy_policyhttp://wikimediafoundation.org/wiki/Terms_of_Usehttp://en.wikipedia.org/wiki/Wikipedia:Text_of_Creative_Commons_Attribution-ShareAlike_3.0_Unported_Licensehttp://www.mediawiki.org/http://wikimediafoundation.org/http://en.m.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://en.wikipedia.org/wiki/Wikipedia:Contact_ushttp://en.wikipedia.org/wiki/Wikipedia:General_disclaimerhttp://en.wikipedia.org/wiki/Wikipedia:Abouthttp://wikimediafoundation.org/wiki/Privacy_policy

Documents

Capital Asset Pricing Model iii