文档介绍：1Econ 906 Corporate FinanceThe Capital Asset Pricing Model (CAPM)Readings: Copeland/Weston Ch 7, BM Ch 9, GT Ch 5-6 Roll, Richard W. “A Critique of the Asset Pricing Theory’s Tests; Part I: On Past and Potential Testability of the Theory”, Journal of Financial Economics 4, (1977), pp 129-176Kothari, ., et al., “Another Look at the Cross-Section of Expected Stock Returns”, Journal of Finance, 50, no. 1 (1995), pp 185- es?Make distinction between CML and SML?Identifying the efficiency frontier and minimum variance portfolio?Analysing the relationship between risk and return?Assessing empirical tests of the CAPM and the limitations of the model3Introduction?The CAPM show that the equilibrium rates of return on all risky assets are a function of their covariance with the market portfolio?The APT on the other hand considers that the return on any risky asset is a bination of various factors that affect asset returns.?The APT is more general than the CAPM since it allows numerous factors to explain the equilibrium return on a risky Assumptions?Investors base their investment decision on a single-period analysis.?Markets are frictionless (borrowing rate equals lending rate) and information is costless and simultaneously available to all investors.?There are no market imperfections such as taxes, regulations, or restrictions on short-selling.?Investors are risk-averse, and they care only about mean and variance of their portfolio returns.?Investors have homogeneous expectation which means that all investors reach the same conclusions about the mean and standard deviations of all feasible portfolios. ?Risk-less rate of interest exists such that investors may borrow or lend unlimited amounts at the risk-free Market LineReturnRiskEfficient PortfolioRisk Free Return =Market Return = rm6Security Market LineEfficient PortfolioBETAReturnMarket Return = rmRisk Free Return = Market Line (SML)7The Efficient Frontier