You are seeing Ask web results for capital asset pricing model.
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Encyclopedia: Capital asset pricing model
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What Does Capital Asset Pricing Model - CAPM Mean?; A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities. The general idea behind CAPM is that investors need to be compensated in two ways: time value of money and risk.
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CAPM helps you determine what return you deserve for putting your money at risk.
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Valuation with the Capital Asset Pricing Model uses a variation of discounted cash flows; only instead of giving yourself a "margin of safety" by being conservative in your earnings estimates, you use a varying discount rate that gets bigger to compensate for your investment's riskiness.
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The Capital Asset Pricing Model uses Beta to relate market securities to broad asset classes, and simplifies finding the optimal point on the Efficient Frontier. The derivation isn't exactly a walk in the park (yikes!), but the result is a simple linear relationship known as the Capital Asset Pricing Model:
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Who introduced the CAPM - Capital Asset Pricing Model? ; Harry Markowitz worked on diversification and modern portfolio theory. Jack Treynor, John Lintner, Jan Mossin and William Sharpe all contributed to the theory of CAPM.
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From this research, Sharpe independently developed a heretical notion of investment risk and reward, a sophisticated reasoning that has become known as the Capital Asset Pricing Model, or the CAPM. The CAPM rattled investment professionals in the 1960s, and its commanding importance still reverberates today.
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This paper shows that, in the presence of differential taxation of ordinary income and capital gains, use of the Officer (1994) version of the Capital Asset Pricing Model can result in significant misestimation of the cost of equity capital.
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William Sharpe (1964) published the capital asset pricing model (CAPM). Parallel work was also performed by Treynor (1961) and Lintner (1965). CAPM extended Harry Markowitz's portfolio theory to introduce the notions of systematic and specific risk. We call CAPM a "capital asset pricing model" because, given a beta and...
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The Capital Asset Pricing Model implies that each security's expected return is linear in its beta. A possible strategy for testing the model is to collect securities' betas at a particular point in time and to see if these betas can explain the cross-sectional differences in average returns.
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