Beta, as measured by the Capital Asset Pricing Model (CAPM), is widely used for pricing stocks, determining the cost of capital, and gauging the extent to which markets are integrated. The CAPM model assumes that equilibrium conditions prevail. The choice of which market portfolio to use in the regression – the home country or global index – depends on the level of global market integration. We...

Federal Reserve Bank of Atlanta E C O N O M I C R E V I E W Second Quarter 2002 D o financial markets offer higher rewards in the form of average returns for holding risks related to recessions and financial distress in addition to the risks from overall market movements? The answer to this question is related to the way financial economists understand the investment world. Fifteen years ago, f...

One of the most important developments of modern finance is the Capital Asset Pricing Model (CAPM) of Sharpe, Lintner and Mossin. Although the model has been the subject of several academic papers, it is still exposed to theoretical and empirical criticisms. The CAPM is based on Markowitz’s (1959) mean variance analysis. Markowitz demonstrated that rational investors would hold assets, which of...

the capital asset pricing model (capm) is an equilibrium model for explaining the relationship between risk and returns of individual assets. in other words, the capm shows that how assets are priced according to their risk. capm is based on the assumption that investors is finding the efficient portfolio act in such a way that the efficient portfolio theory explains and their choices of the po...

This study extends the classic Capital Asset Pricing Model (CAPM) by relaxing the assumptions that all assets are perfectly divisible and liquid, and that investors face the same set of investment opportunities. It is assumed that investors can invest in two types of assets: perfectly divisible, and perfectly indivisible (or discrete). Also, investors may face different sets of investment oppor...

The conditional CAPM and the nonlinear APT are two important extensions of the Sharpe-Lintner constant beta CAPM. Bansal, Hsieh, and Viswanathan (1993), and Ghysels (1998) suggest that the nonlinear APT is empirically more successful than the conditional CAPM. Using a flexible nonparametric version of the conditional CAPM, we get the opposite result: the conditional CAPM does a substantially be...

Starting from the reward-risk model for portfolio selection introduced in De Giorgi (2004), we derive the reward-risk Capital Asset Pricing Model (CAPM) analogously to the classical mean-variance CAPM. The reward-risk portfolio selection arises from an axiomatic definition of reward and risk measures based on few basic principles, including consistency with second order stochastic dominance. Wi...

The Sharpe (1964), Lintner (1965) and Black (1972) Capital Asset Pricing Model (CAPM) is considered one of the foundational contributions to the practice of finance. The model postulates that the equilibrium rates of return on all risky assets are a linear function of their covariance with the market portfolio. Recent work by Fama and French (1996, 2006) introduce a Three Factor Model that ques...

This note contains two remarks on the traditional capital asset pricing model (CAPM) with one risk-free asset. Firstly, an elementary proof of the two-fund separation theorem is provided showing that asset-demand may become undefined if the limiting slope of the investor's indifference curves is finite. Secondly, it is shown that an additional limiting condition on the risk aversion is generall...

The purpose of this study is to test the validity CAPM in Amman Stock Exchange (ASE) during period (2010 – 2014), which was divided into three sub periods. We used monthly returns 60 stocks Jordanian companies listed ASE. Black, Jensen and Scholes (1972) Fama MacBeth (1973) methods were different sub-periods. analysis results showed that higher risk (beta) not associated with levels return, vio...