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The CAPM has been described as the most widely used model in explaining the relationship between the risk and returns of financial investments. Discuss the theoretical and empirical considerations surroundings the CAPM.
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The CAPM has been described as the most widely used model in explaining the relationship between the risk and returns of financial investments. Discuss the theoretical and empirical considerations surroundings the CAPM. In the 1960's financial researchers working with Harry Markowitz's portfolio theory made a remarkable discovery that would change investment theory and practise throughout the world. William Sharpe based his discovery upon an idealised model of the markets, in which all the worlds risky assets were included in the investors opportunity set and one risk less asset existed, allowing both more and less risk averse investors to find their optimal portfolio. The capital asset pricing model (CAPM) was a breakthrough in modern finance because for the first time a model became available which enabled academics, financiers and investors to link the risk and return for an asset together, and which explained the underlying mechanism of asset pricing in capital markets....
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