Documentos de Académico
Documentos de Profesional
Documentos de Cultura
Maddah
04/05/06
r = rf +
rM rf
ri rf = i (rM rf )
(CAPM formula)
2
where i = iM / M is the beta of asset i.
i =1
i =1
i =1
= Cov( wi ri , rM ) / M2 = wi Cov(ri , rM ) / M2 = wi i .
ri = rf + i (rM rf ) + i ,
(1)
i 2 = i 2 M2 + Var[ i ] .
That is, the risk of asset i is composed of two terms: (i) The
2
systematic risk, i M , and (ii) the nonsystematic or specific
2
risk Var[ i ] .
The systematic risk is the risk associated with the market as a
whole and cannot be diversified.
The specific risk is uncorrelated with the market and can be
diversified.
The systematic risk is the most important.
The nonsystematic risk of an asset on the capital market line
is zero because the standard deviation for this asset is
r rf
M = M .
rM rf
Investment Implications
Can CAPM help with investment decisions?
CAPM recommends that investors should invest in the
market portfolio.
That is, an investor should purchase a little bit of each
available asset without solving a Markowitz model.
Mutual funds match the market portfolio closely by investing
in index funds (e.g. SP 500 index).
So, if you believe in CAPM, just invest in an index fund.
But an investor may believe he has superior mean-variance
estimates and may engage in solving a Markowitz model.
However, accurate mean-variance estimates are difficult to
obtain.
When constructing a portfolio, the recommendation is to start
with the CAPM market portfolio and alter it systematically
without solving the Markowitz model from scratch.
CAPM can also be useful in assigning reasonable prices for
assets that do not have well-established prices.
Performance Evaluation
The CAPM theory can be used to evaluate the performance
of investment portfolios by comparing them to assets on the
capital market line (see Example 7.4, text).
r plane.
Q
.
1 + rf + ( rM rf )
?
Q1
Q2
Q1 + Q2
, P2 =
P1 + P2 =
1 + rf + 1 (rM rf )
1 + rf + 2 (rM rf )
1 + rf + 1+ 2 (rM rf )
Then, P =
Q
.
1 + rf + Cov (Q, rM ) /( P M2 ) (rM rf )
10
Cov(Q, rM )( rM rf )
Q
1
1 + rf
Cov(Q, rM )( rM rf )
Q
.
M2