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Capital Asset Pricing Model

A model that attempts to describe the relationship between the risk and the expected return on an investment that is used to determine an investment's appropriate price. The assumption behind the CAPM is that money has two values: a time value and a risk value. Thus, any risky asset or investment must compensate the investor for both the time his/her money is tied up in the investment and the investment's relative riskiness. This compensation must be in addition to the risk-free rate of return. There are a number of variations on the CAPM, notably the multifactor CAPM and the two-factor model. The CAPM is calculated according to the following formula:

ra = rf + Betaa(rm - rf)


ra is the asset price,
rf is the risk-free rate of return,
Betaa is the risk premium, and

rm is the market rate of return.


References in periodicals archive ?
Tabela 1 Estatisticas descritivas e CAPM incondicional (julho de 1999 a maio de 2013) Meidia Desvio Indice alfa Padrao Sharpe (%) BM1 3,02% 7,82% 0,24 1,38 ** BM2 2,42% 6,27% 0,20 0,84 ** BM3 2,11% 6,30% 0,15 0,48 BM4 1,96% 6,33% 0,13 0,32 BM5 1,56% 6,78% 0,06 -0,10 Tam1 1,56% 6,73% 0,06 -0,15 Tam2 2,09% 6,58% 0,15 0,44 Tam3 2,40% 7,00% 0,18 0,76 * Tam4 2,27% 6,27% 0,18 0,73 Tam5 2,78% 7,43% 0,22 1,20 * estat.
Turning to CAPM Investment itself, what are the benefits of being part of a larger group?
This paper was divided in five sections: the second sextion discusses the theoretical framework of the conditional CAPM.
H2 = There is a significant difference between the returns of CAPM and seven factors model applied on the financial sector of Pakistan
With the above stated introduction of equity return and its important determinants, present study attempts to explore the role of CAPM, TFM, earning components and stock price volatility on the equity returns of Pakistan.
A contribuicao deste trabalho decorre, principalmente, em verificar se o retorno das acoes das empresas do novo mercado da BM&FBovespa sao capitados pelo o CAPM, sendo o mesmo um benchmark para o retorno minimo exigido pelo investidor em sua tomada de decisao, independentemente das divergencias na estimacao de seus parametros.
For example, Godfrey and Espinosa (1996) suggested two main modifications of traditional United States (US) cost of equity calculation based on CAPM that should be made for emerging countries.
For these reasons, asset pricing model approach, particularly CAPM model has become standard to calculate a firm's equity returns.
They conclude that FF3 model performs better than the CAPM in explaining stock returns in Hong Kong stock market.
These measures indicate the supremacy of the multifactor models in comparison with the CAPM in the two sub-periods analyzed, with the four factor model presenting slightly better performance than the three factor and all of the models presenting better predictions in the period following the 2008 crisis.
The study sought to evaluate the appropriateness of net present value, based on CAPM discount rate, in order to assess family new enterprises.
The CAPM appears to be an appropriate model to calculate expected returns emanating from the Indian stock market.