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A Model of Capital Asset Risk

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  • Pettit, R. Richardson
  • Westerfield, Randolph

Abstract

The “market model” of capital asset pricing theory posits that the oneperiod return on an asset is a linear function of the one-period return on a “market factor” plus the effect of factors that are unique to that asset. The coefficients of the model, estimated using realized returns, can be used for predicting asset returns conditional on market returns, and the slope or “beta” coefficient provides an estimate of the asset's risk. Although the market model has been applied to a wide variety of capital market studies and is now being applied by practitioners for assessing asset risk, very little research has been undertaken to discover the determinants of the beta coefficient.

Suggested Citation

  • Pettit, R. Richardson & Westerfield, Randolph, 1972. "A Model of Capital Asset Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(2), pages 1649-1668, March.
    • Handle: RePEc:cup:jfinqa:v:7:y:1972:i:02:p:1649-1668_01
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    Cited by:

    1. Atif Ellahie, 2021. "Earnings beta," Review of Accounting Studies, Springer, vol. 26(1), pages 81-122, March.
    2. Wiesen, Taylor, 2023. "Aggregate earnings and market expectations in United States presidential election prediction markets," Advances in accounting, Elsevier, vol. 60(C).
    3. Darmon, René & Khoury, Nabil T. & Martel, Jean-Marc, 1990. "Facteurs de risque des actions ordinaires : le point de vue des gestionnaires québécois," L'Actualité Economique, Société Canadienne de Science Economique, vol. 66(3), pages 348-364, septembre.
    4. Knut Anton Mork & Hanna Marisela Eap & Magnus Eskedal Haraldsen, 2020. "Portfolio Choice for a Resource-Based Sovereign Wealth Fund: An Analysis of Cash Flows," IJFS, MDPI, vol. 8(1), pages 1-20, March.

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