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2018•Palgrave Macmillan UK eBooksRequires access

Capital Asset Pricing Model (CAPM)

Rajeev R. Bhattacharya

Open publisher page 1 citations

Abstract

The capital asset pricing model (CAPM) for a security is a linear relationship between the expected excess return of the security and the expected excess return of the market. It was developed by William Sharpe, John Lintner and Jan Mossin. It is a useful framework to discuss idiosyncratic and systematic risk. The security market line is a powerful graphical construct of the CAPM. While the CAPM has strong underlying assumptions, recent research has relaxed many of these assumptions. It is commonly used to calculate cost of capital and required rate of return.

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What this paper is about

The capital asset pricing model (CAPM) for a security is a linear relationship between the expected excess return of the security and the expected excess return of the market. It was developed by William Sharpe, John Lintner and Jan Mossin. It is a useful framework to discuss idiosyncratic and systematic risk. The security market line is a powerful graphical construct of the CAPM. While the CAPM has strong underlying assumptions, recent research has relaxed many of these assumptions. It is commonly used to calculate cost of capital and required rate of return.

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Available abstract

The capital asset pricing model (CAPM) for a security is a linear relationship between the expected excess return of the security and the expected excess return of the market. It was developed by William Sharpe, John Lintner and Jan Mossin. It is a useful framework to discuss idiosyncratic and systematic risk. The security market line is a powerful graphical construct of the CAPM. While the CAPM has strong underlying assumptions, recent research has relaxed many of these assumptions. It is commonly used to calculate cost of capital and required rate of return.

Key concepts: Capital asset pricing model, Security market line, Consumption-based capital asset pricing model, Economics, Financial economics, Systematic risk, Expected return, Econometrics

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