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
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: Suggested Citation
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