Capital Asset Pricing Model

Palgrave Encyclopedia of Strategic Management, Eds. Mie Augier, David J. Teece, ISBN 978-1-137-49190-9, Palgrave Macmillan UK, 2016

4 Pages Posted: 8 Jun 2017

See all articles by Rajeev R. Bhattacharya

Rajeev R. Bhattacharya

Southern Methodist University (SMU) - Finance Department

Date Written: 2015

Abstract

The capital asset pricing model (CAPM) for a security is a linear relationship between the expected excess return of the security and the expected excess return of the market. It was developed by William Sharpe, John Lintner and Jan Mossin. It is a useful framework to discuss idiosyncratic and systematic risk. The security market line is a powerful graphical construct of the CAPM. While the CAPM has strong underlying assumptions, recent research has relaxed many of these assumptions. It is commonly used to calculate cost of capital and required rate of return.

Keywords: CPAM, Finance, Securities, Cost of Capital, Rate of Return

JEL Classification: G12, G11, G14, G32, C02

Suggested Citation

Bhattacharya, Rajeev, Capital Asset Pricing Model (2015). Palgrave Encyclopedia of Strategic Management, Eds. Mie Augier, David J. Teece, ISBN 978-1-137-49190-9, Palgrave Macmillan UK, 2016, Available at SSRN: https://ssrn.com/abstract=2981076

Rajeev Bhattacharya (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

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