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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 a well-diversified portfolio .
The capital asset pricing model (CAPM) is a financial model used to determine a security’s expected return considering its associated risk. Developed in the 1960s, CAPM has become an essential ...
Historically, the vast majority of traditional funds have had negative alphas, which has led to a flight of capital to index funds and non-traditional hedge funds. It is also possible to analyze a portfolio of investments and calculate a theoretical performance, most commonly using the capital asset pricing model (CAPM).
The consumption-based capital asset pricing model (CCAPM) is a model of the determination of expected (i.e. required) return on an investment. [1] The foundations of this concept were laid by the research of Robert Lucas (1978) and Douglas Breeden (1979). [2] The model is a generalization of the capital asset pricing model (CAPM). While the ...
Security market line ( SML) is the representation of the capital asset pricing model. It displays the expected rate of return of an individual security as a function of systematic, non-diversifiable risk. The risk of an individual risky security reflects the volatility of the return from the security rather than the return of the market portfolio.
Intertemporal CAPM. Within mathematical finance, the intertemporal capital asset pricing model, or ICAPM, is an alternative to the CAPM provided by Robert Merton. It is a linear factor model with wealth as state variable that forecasts changes in the distribution of future returns or income . In the ICAPM investors are solving lifetime ...
Discounted cash flow. The discounted cash flow ( DCF) analysis, in financial analysis, is a method used to value a security, project, company, or asset, that incorporates the time value of money. Discounted cash flow analysis is widely used in investment finance, real estate development, corporate financial management, and patent valuation.
Fama–MacBeth regression. The Fama–MacBeth regression is a method used to estimate parameters for asset pricing models such as the capital asset pricing model (CAPM). The method estimates the betas and risk premia for any risk factors that are expected to determine asset prices.