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Roll's critique. Roll's critique is a famous analysis of the validity of empirical tests of the capital asset pricing model (CAPM) by Richard Roll. It concerns methods to formally test the statement of the CAPM, the equation. This equation relates an asset's expected return to the asset's sensitivity to the market portfolio return .
Capital asset pricing model. An estimation of the CAPM and the security market line (purple) for the Dow Jones Industrial Average over 3 years for monthly data. In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to ...
Arbitrage pricing theory. In finance, arbitrage pricing theory (APT) is a multi-factor model for asset pricing which relates various macro-economic (systematic) risk variables to the pricing of financial assets. Proposed by economist Stephen Ross in 1976, [ 1 ] it is widely believed to be an improved alternative to its predecessor, the capital ...
The Cambridge capital controversy, sometimes called " the capital controversy " [ 1 ] or " the two Cambridges debate ", [ 2 ] was a dispute between proponents of two differing theoretical and mathematical positions in economics that started in the 1950s and lasted well into the 1960s. The debate concerned the nature and role of capital goods ...
Dividend discount model. In financial economics, the dividend discount model (DDM) is a method of valuing the price of a company's capital stock or business value based on the assertion that intrinsic value is determined by the sum of future cash flows from dividend payments to shareholders, discounted back to their present value. [1][2] The ...
Valuation models can be used to value intangible assets such as for patent valuation, but also in copyrights, software, trade secrets, and customer relationships. [16] As economies are becoming increasingly informational, it is recognized that there is a need for new methods to value data, another intangible asset.
Fundamental analysis of stock prices. Discounted cash flow valuation. Gordon model. John Burr Williams (November 27, 1900 – September 15, 1989) was an American economist, recognized as an important figure in the field of fundamental analysis, and for his analysis of stock prices as reflecting their "intrinsic value". [1]
In 2015, Fama and French extended the model, adding a further two factors — profitability and investment. Defined analogously to the HML factor, the profitability factor (RMW) is the difference between the returns of firms with robust (high) and weak (low) operating profitability; and the investment factor (CMA) is the difference between the returns of firms that invest conservatively and ...