Market Model

Market model

The market model says that the return on a security depends on the return on the market portfolio and the extent of the security's responsiveness as measured by beta. The return also depends on conditions that are unique to the firm. The market model can be graphed as a line fitted to a plot of asset returns against returns on the market portfolio. This relationship is sometimes called the single-index model.

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Market Model

The relationship between a security's performance and the performance of a portfolio containing it. The market model states that the security's performance is related its portfolio's performance according to its beta; that is, if a security has a beta of 2, and the portfolio rises 10%, then that particular security generally rises 20%. See also: Markowitz Portfolio Theory.