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- Developing a Capital Asset Pricing Model
- CAPM describes the relationship between risk and expected return for an individual portfolio or security. Its underlying theory has prompted lively discussion about what "risk" actually means, asserting that only "systematic" (non-diversified) risk brings real reward to investors. Systematic risk is unavoidable, market-oriented risk that cannot be averaged out through...
- Articles 2007-10-12
- Value Versus Glamour
- CAPM is basically a method of decision-making w.r.t. any kind of investment in any asset. The fragility of the CAPM has led to a resurgence of research that frequently uses trading strategies based on sorting procedures to uncover relations between firm characteristics and equity returns. It examine the propensity of...
- White papers 2003-01-01
- Equilibrium "Anomalies"
- Many empirical "anomalies" are actually consistent with the single beta CAPM if the empiricist utilizes an equity-only proxy for the true market portfolio. CAPM is basically a method of decision-making w.r.t. any kind of investment in any asset. Equity betas estimated against this particular inefficient proxy will be understated, with...
- White papers 2003-01-01
- A Portfolio Selection and Capital Asset Pricing Model
- The aim of this paper is to improve the characterization of a capital market within the CAPM without losing its simplicity and explanatory power. To highlight the peculiarities of the model, the main steps in the development of the standard CAPM are briefly reviewed. The standard CAPM is extended so...
- White papers 2002-02-06
- The Conditional CAPM Does Not Explain Asset-Pricing Anamolies
- Recent studies suggest that the conditional CAPM might hold, period-by-period, and that time-varying betas can explain the failures of the simple, unconditional CAPM. The paper argues, however, that significant departures from the unconditional CAPM would require implausibly large time-variation in betas and expected returns. Thus, the conditional CAPM is unlikely...
- White papers 2003-09-01
- CAPM Calculator
- This Capital Asset Pricing Model calculator CAPM can help the investor figure out the expected return on a capital asset at a given risk level. The CAPM is a common stock valuation tool used by investors and this calculator provides both the expected return on the capital asset as well...
- Tools & templates 2008-01-01
Additional Resources
- Systematic Risk in Emerging Markets: The D-CAPM
- There is by now a growing literature arguing against the use of the CAPM to estimate required returns on equity in emerging markets. The model characterizes that it measures risk by beta, which follows from an equilibrium in which investors display mean-variance behavior. The semi variance of returns is a...
- White papers 2002-09-01
- Tracking The Real Market Using A Trading Value System To Implement CAPM
- Since its debut in the 1960s, William F. Sharpe's CAPM Capital Asset Pricing Model has preoccupied the minds of many sophisticated investors. Based on CAPM's doctrines, passive investment strategy has become a significant part of investors 'game plan, and indexed portfolios have grown in assets from zero in 1970 to...
- White papers 2003-01-01
- How to Price Hedge Funds: From Two-to Four-Moment CAPM
- The CAPM model has serious difficulties to explain the past superior performance of most hedge funds. The purpose of this research is to analyze how to price hedge funds. This paper compares the traditional CAPM based on the Markowitz mean-variance criterion with extensions of the CAPM that account for co-skewness...
- White papers 2003-10-07
- CAPM Over the Long-Run: 1926-2001
- The CAPM can account for the spread in the average returns of portfolios sorted by book to market ratios over the long run from 1926-2001. In contrast, other studies document strong evidence of a book-to-market effect using post-1963 data, but they do so by relying on asymptotic standard errors. This...
- White papers 2003-09-28
- Learning about Beta: A New Look at CAPM Tests
- This paper develops an equilibrium model of learning about time-varying beta. In the model, the capital asset pricing model CAPM works for investors' probability distribution. However, mispricing can be observed if econometricians estimate betas without accounting for the investors' learning process. The empirical implication for asset-pricing tests is that the...
- White papers 2004-09-01
- A Simple Approach to CAPM, Option Pricing and Asset Valuation
- This paper presents a simple, intuitive approach to asset valuation in terms of marginal contributions to the characteristics moments of the market portfolio. Considering only the first two moments, mean and variance, the valuation equation is shown to correspond to Sharpe's CAPM.A risk-neutral pricing formula is easily derived, showing the...
- White papers 2003-03-19
- A Patent Race in a Real Options Setting: Investment Strategy, Valuation, CAPM Beta and Return Volatility
- This paper studies financial properties of venture-capital backed start-ups through a continuous-time real-options patent-race model. Numerical analysis shows that patent races, relative to a joint monopoly, cause over-investment, value-dissipation, a higher CAPM beta, a higher return volatility and more negative return correlation when firms intensively compete. A firm's CAPM beta...
- White papers 2005-01-12
- Asset Pricing Implications of Benchmarking: A Two-Factor CAPM
- This paper considers the equilibrium effects of an institutional investor whose performance is benchmarked to an index. In a partial equilibrium setting, the objective of the institutional investor is modeled as the maximization of expected utility (an increasing and concave function, in order to accommodate risk aversion) of final wealth...
- White papers 2001-07-01
- The International CAPM and a Wavelet-Based Decomposition of Value at Risk
- In this paper, the authors formulate a time-scale decomposition of an international version of the CAPM that accounts for both market and exchange-rate risk. In addition, an analytical formula is derived for time-scale value at risk and marginal Value at Risk VaR of a portfolio. The methodology is applied to...
- White papers 2006-05-01
- Preparing for the PMP or CAPM Exam?
- If you're preparing for the PMP® or CAPM® exam, this Global Knowledge white paper can help. It details the eligibility requirements for each exam and offers tips and advice for simplifying the application process. In addition, it outlines: The types of questions you'll encounter Tips for passing the...
- White papers
- Rethinking CAPM; Sharpe supports less complex simulation as a way to overcome the flaws of mean-variance analysis.(Portfolio Strategies)(Capital Asset Pricing Model )
- Byline: Joel Chernoff William F. Sharpe says his pioneering work on the Capital Asset Pricing Model is ready for a makeover. The 42-year-old model - which earned Mr. Sharpe a Nobel Memorial Prize in economics in 1990 - is being revamped because...
- Research articles 2006-10-02
- Tips on Applying for and Passing the PMP or CAPM Exam: Updated for PMBOK 4th Edition
- The number of Project Managers getting certified is growing every year, and certification helps Project Managers differentiate themselves from their co-workers or other job applicants. Certification also provides credibility for the Project Manager, assuring the client or organization that the fundamentals of successful management of projects are understood and practiced....
- White papers 2009-10-12
- New Facts in Finance
- The last 15 years have seen a revolution in the way financial economists understand the world around us. We once thought that stock and bond returns were essentially unpredictable. Now we recognize that stock and bond returns have a substantial predictable component at long horizons. We once thought the capital...
- White papers 1999-06-01
- Taking Stock
- Since the stockmarket bubble burst more than three years ago, investors have had ample time to ponder where to put the remains of their money. Economists and analysts too have been revisiting old ideas. None has been dearer to them than the capital asset pricing model CAPM, a formula linking...
- White papers 2003-06-05
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