Capital Asset Pricing Model (CAPM) and the current economy

목차

1. Introduction
2. Systematic risk and Unsystematic risk
3. Risks and returns
4. Problems with practical application of CAPM
5. Conclusion
6. References

본문내용

1. Introduction
Investing in capital markets involves tremendous amounts of risk. Investors seek to be paid for taking risk through their investments in the financial markets. They seek to reduce their exposure to risk as a way of increasing or sustaining their returns on investments. One way that investors are able to reduce risk is through diversification within their portfolio of asset holdings. However, it has been proven that mere diversification does not necessarily reduce risk within a given portfolio. Many scholars within existing literature believe that measuring the risk in an asset would provide better guidance for diversification. One way of measuring this risk is through William Sharpe’s Capital Asset Pricing Model (CAPM). This model has been widely used within the industry however; there have been various developments that have raised doubts in its use. Below is a discussion of the Capital Asset Pricing Model along with its practical problems in light of recent developments.

참고 자료

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