Security Market Line

Security market line

Line representing the relationship between expected return and market risk or beta. The slope of this line is the risk premium for beta.

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Security Market Line

The linear relationship between expected asset returns and betas posited by the Capital Asset Pricing Model.

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Security Market Line

In Markowitz Portfolio Theory, a line on a chart representing the capital asset pricing model. The security market line plots risk versus expected return of the market. The security market line is a useful tool in determining whether a given security is undervalued and/or a market outperform. If a security plots the security market line, it indicates a higher expected return for a given level of risk than the market as a whole.

Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

security market line

A line used to illustrate the relationship between risk and return for individual securities. The security market line shows a positive linear relationship between returns and systematic risk as measured by beta.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.