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Risk and Return
S/F/230. Is CAPM a sound measurement of risk?
- WORDS:
- 2500
- DATE:
- 2009
- PRICE:
- 29.99 GBP
The paper examines the use of the Capital Asset Pricing Model (CAPM) in the context of the modern portfolio theory arguing that CAPM takes into account only systematic risks and cannot be considered as a reliable tool of risk management. Analysis of 50 S&P 500 companies is conducted to examine the relationship between risk and return. Alternative models are described including Intertemporal CAPM, the Fama and French (FF) 3-factor model and the Arbitrage Pricing Theory (APT).
KEYWORDS: Capital Asset Pricing Model, CAPM, Arbitrage Pricing Theory, FF 3-factor model,
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