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The Capital Asset Pricing Model

In: Capital Market Finance

Author

Listed:
  • Patrice Poncet

    (ESSEC Business School)

  • Roland Portait

    (ESSEC Business School)

Abstract

This chapter presents a model that expresses expected returns at equilibrium, assuming that the market portfolio is efficient. The Capital Asset Pricing Model (CAPM) was developed in the 1960s and radically changed the way of thinking in capital market finance. Its central message is that, for any financial asset, the relation between risk and return is positive and linear. It has since experienced many applications, been subjected to innumerable empirical tests, and remains a dominant paradigm despite continual attacks, both theoretical and empirical. Section 22.1 is devoted to its derivation and interpretation, Sect. 22.2 to its main applications, Sect. 22.3 to some of its extensions, Sect. 22.4 to criticisms that have been made against its validity, and Sect. 22.5 to econometric tests.

Suggested Citation

  • Patrice Poncet & Roland Portait, 2022. "The Capital Asset Pricing Model," Springer Texts in Business and Economics, in: Capital Market Finance, chapter 22, pages 929-962, Springer.
    • Handle: RePEc:spr:sptchp:978-3-030-84600-8_22
    DOI: 10.1007/978-3-030-84600-8_22
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