Project Valuation and Investment Decisions: CAPM Versus Arbitrage

Applied Financial Economics Letters, Vol. 3, No. 1, pp. 137-140, 2007

8 Pages Posted: 8 Apr 2009

See all articles by Carlo Alberto Magni

Carlo Alberto Magni

Università degli studi di Modena e Reggio Emilia (UNIMORE) - School of Doctorate E4E (Engineering for Economics-Economics for Engineering)

Date Written: 2007

Abstract

This paper shows that (i) project valuation via disequilibrium NPV CAPM contradicts valuation via arbitrage pricing, (ii) standard CAPM-minded decision makers may fail to profit from arbitrage opportunities, (iii) standard CAPM-based valuation violates value additivity. As a consequence, the standard use of CAPM for project valuation and decision making should be reconsidered.

Keywords: Investment, valuation, CAPM, arbitrage, disequilibrium NPV

JEL Classification: G11, G12, G30, G31

Suggested Citation

Magni, Carlo Alberto, Project Valuation and Investment Decisions: CAPM Versus Arbitrage (2007). Applied Financial Economics Letters, Vol. 3, No. 1, pp. 137-140, 2007, Available at SSRN: https://ssrn.com/abstract=1374592

Carlo Alberto Magni (Contact Author)

Università degli studi di Modena e Reggio Emilia (UNIMORE) - School of Doctorate E4E (Engineering for Economics-Economics for Engineering) ( email )

Italy