### What does **capital asset pricing model** mean?

# Definitions for capital asset pricing model

cap·i·tal as·set pric·ing mod·el

#### This dictionary definitions page includes all the possible meanings, example usage and translations of the word **capital asset pricing model**.

### Wikipedia

Capital asset pricing model

In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio. The model takes into account the asset's sensitivity to non-diversifiable risk (also known as systematic risk or market risk), often represented by the quantity beta (β) in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset. CAPM assumes a particular form of utility functions (in which only first and second moments matter, that is risk is measured by variance, for example a quadratic utility) or alternatively asset returns whose probability distributions are completely described by the first two moments (for example, the normal distribution) and zero transaction costs (necessary for diversification to get rid of all idiosyncratic risk). Under these conditions, CAPM shows that the cost of equity capital is determined only by beta. Despite its failing numerous empirical tests, and the existence of more modern approaches to asset pricing and portfolio selection (such as arbitrage pricing theory and Merton's portfolio problem), the CAPM still remains popular due to its simplicity and utility in a variety of situations.

### Freebase

Capital asset pricing model

In finance, the capital asset pricing model is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk. The model takes into account the asset's sensitivity to non-diversifiable risk, often represented by the quantity beta in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset. CAPM “suggests that an investor’s cost of equity capital is determined by beta.” The CAPM was introduced by Jack Treynor, William F. Sharpe, John Lintner and Jan Mossin independently, building on the earlier work of Harry Markowitz on diversification and modern portfolio theory. Sharpe, Markowitz and Merton Miller jointly received the 1990 Nobel Memorial Prize in Economics for this contribution to the field of financial economics. Fischer Black developed another version of CAPM, called Black CAPM or zero-beta CAPM, that does not assume the existence of a riskless asset. This version was more robust against empirical testing and was influential in the widespread adoption of the CAPM.

### Numerology

Chaldean Numerology

The numerical value of capital asset pricing model in Chaldean Numerology is:

**2**Pythagorean Numerology

The numerical value of capital asset pricing model in Pythagorean Numerology is:

**8**

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"capital asset pricing model." *Definitions.net.* STANDS4 LLC, 2023. Web. 4 Dec. 2023. <https://www.definitions.net/definition/capital+asset+pricing+model>.

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