CAPM is a Capital Asset Pricing Model, and CAPM is developed by American scholars William Sharpe and Lintel.

Jack Treynor and Jan Mossin developed it on the basis of modern portfolio theory and capital market theory in 1964.

It mainly studies the relationship between the expected rate of return of assets and risky assets in the securities market, and how the equilibrium price is formed. It is the pillar of modern financial market price theory and is widely used in investment decision-making and corporate finance.

The capital asset pricing model assumes that all investors invest according to Markowitz's asset selection theory, and the estimates of expected return, variance and covariance are exactly the same, so investors can borrow freely.

based on this assumption, the focus of capital asset pricing model research is to explore the quantitative relationship between risk asset returns and risks, that is, how much return investors should get in order to compensate for a certain degree of risk.

Extended information:

capm calculation method:

When the capital market reaches equilibrium, the marginal price of risk is unchanged, and the marginal effect brought by any investment change in market portfolio is the same, that is, the compensation for increasing the risk by one unit is the same.

according to the definition of β, under the condition of balanced capital market, the capital asset pricing model is obtained: E(ri)=rf+βim(E(rm)-rf).

The description of the capital asset pricing model is as follows:

1. The expected rate of return of a single security consists of two parts, namely, the risk-free interest rate and the risk premium.

2. The risk premium depends on the β value. The higher the beta value, the higher the risk of a single security and the higher the compensation.

3. It measures the systematic risk of a single security, and there is no risk compensation for non-systematic risk.

where:

E(ri) is the expected rate of return of asset I.

rf? It's a risk-free interest rate.

βim? Is [[Beta coefficient]], that is, the systemic risk of asset I.

E(rm) is the expected market return rate of market m.

E(rm)-rf? Is the market risk premium, that is, the difference between the expected market rate of return and the risk-free rate of return.

a model for determining the price of assets in the form of capital (such as stocks). Take the stock market as an example. Suppose investors invest in the whole stock market through funds.

so his investment is completely diversified, and he will not bear any risk that can be diversified. However, due to the consistency of economic and stock market changes, investors will bear the risk that cannot be dispersed. So the expected return of investors is higher than the risk-free interest rate.

suppose the expected rate of return in the stock market is E(rm) and the risk-free interest rate is rf, then the market risk premium is E(rm)? Rf, this is the expected return of investors because they bear the inseparable risks related to the stock market.

consider an asset (such as a company's stock) and set its expected rate of return as Ri. Since the risk-free interest rate in the market is Rf, the risk premium of this asset is E(ri)-rf.

the capital asset pricing model describes the relationship between the risk premium of the asset and the risk premium of the market E(ri)-rf =βim (E(rm)? Rf) formula. The beta coefficient is constant and is called asset beta.

β coefficient indicates the sensitivity of the return rate of an asset to market changes, which can measure the undivided risk of the asset.

if β is given, we can determine the correct discount rate of the present value of an asset, which is the expected rate of return of this asset or another asset with the same risk? Discount rate =Rf+β(Rm-Rf).

Baidu Encyclopedia-Capital Asset Pricing Model