INVESTMENTS 投资学 （博迪BODIE, KANE, MARCUS）Chap009 The Capital Asset Pricing Model.pptVIP

INVESTMENTS | BODIE, KANE, MARCUS INVESTMENTS | BODIE, KANE, MARCUS Copyright ? 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 9 The Capital Asset Pricing Model It is the equilibrium model that underlies all modern financial theory Derived using principles of diversification with simplified assumptions Markowitz, Sharpe, Lintner and Mossin are researchers credited with its development Capital Asset Pricing Model (CAPM) Assumptions Individual investors are price takers Single-period investment horizon Investments are limited to traded financial assets No taxes and transaction costs Information is costless and available to all investors Investors are rational mean-variance optimizers There are homogeneous expectations All investors will hold the same portfolio for risky assets – market portfolio Market portfolio contains all securities and the proportion of each security is its market value as a percentage of total market value Resulting Equilibrium Conditions Risk premium on the market depends on the average risk aversion of all market participants Risk premium on an individual security is a function of its covariance with the market Resulting Equilibrium Conditions Figure 9.1 The Efficient Frontier and the Capital Market Line Market Risk Premium The risk premium on the market portfolio will be proportional to its risk and the degree of risk aversion of the investor:  The risk premium on individual securities is a function of the individual security’s contribution to the risk of the market portfolio. An individual security’s risk premium is a function of the covariance of returns with the assets that make up the market portfolio. Return and Risk For Individual Securities GE Example Covariance of GE return with the market portfolio: Therefore, the reward-to-risk ratio for investments in GE would be: GE Example Reward-to-risk ratio for investment in market portfolio: Reward-to-risk ratios of GE and the market portfolio