Growth and Development of the Capital Asset Pricing Model

Comparison and comparison of pricing models This article explains the growth and development of capital asset pricing model (CAPM). It also identifies and analyzes various applications of CAPM. Explain how you can use this model to generate expected revenue and metrics. These illustrations are conveyed through examples of stock options and restricted stocks. Finally, we compare potential results with arbitrage price theory (APT), and relative advantages and risks when using CAPM.

Based on the work of Harry Markowitz, John Lintner, William Sharpe, and Jack Treynor are usually given a great deal of credit to introduce the capital asset pricing model (CAPM), the first formal asset pricing model . It was developed in the early 1960s and provides the initial precise definition of risk and how it produces the expected return. CAPM focuses on risks and returns from a "single factor" point of view. Portfolio risks and returns are determined only by risk to market beta. Beta is an indicator of the risk of stock type, investment trust, or portfolio stock type against global market risk. CAPM is a sales model of the financial industry for about 30 years.

Since 1970, finance companies have used the capital asset pricing model (CAPM) to calculate their portfolio performance and capital cost. However, there are many models of asset pricing that must identify the risk of assets, and many researchers have found that Mossin (1966), Sharp (1964), Sharp (1964), Lintner (1965) We measure the risk premium of each unit in the whole asset and calculate the asset risk by measuring the average of market beta. Therefore, the CAPM module has a linear relationship between the market beta and the risk premium of the asset, which can be considered a systematic risk. In addition, CAPM shows that the asset return rate varies depending on the asset market beta. (Fazil, 2007)