3 ms·
Is that how CAPM works?
by tclancy 6y ago
Is that how CAPM works?
- FabHK 6y agoNo, the Capital Asset Pricing Model has nothing to do with this discussion. It takes the payoff distribution of capital assets as exogenously given (and known), then makes assumptions about investors' utility functions to find the price they're willing to pay for these assets, then employs an equilibrium argument and some neat maths to arrive at a linear relationship between the expected excess return of an asset and its beta.
- bumby 6y agoAny suggestions on where one can learn more, particularly with the mathematics involved?
- alasdair_ 6y agoWikipedia is honestly pretty good.
- alasdair_ 6y agoThe concept of beta (and non-diversifiable risk in general) is related to the concept of “economic profit”. They may not be directly related but to claim the CAPM “has nothing to do with this discussion” of economic profit is a bit strong.