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Asset Pricing Issues
are likely to remain the subject of legitimate interest far into the future. In other words, they will continue to be useful in helping us understand not just financial markets but also human behaviour and psychology. An example of the many issues facing researchers is the shape of the security market line which, according to the capital asset pricing model, reflects the most efficient portfolio that would give the best return for a certain level of risk. As recounted by Campbell (2000, 1528-29), changes in the slope of this line led to several hypotheses that were attempts to discover the...

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Capital Asset Pricing Model (CAPM) Vs. Arbitrage Pricing Theory (APT)
The model derived rate of return will then be used to price the asset correctly - the asset price should equal the expected end of period price discounted at the rate implied by model. If the price diverges, arbitrage should bring it back into line. The theory was initiated by the economist Stephen Ross in 1976.(Ross,1976) If APT holds, then a risky asset can be described as satisfying the following relation:...

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"The Capital Asset Pricing Model (CAPM) isn't wrong. It just doesn't go far enough." Discuss.
The cpitl sset pricing model (CPM) theory ssumes tht n investor expects yield on certin security equivlent to the risk free rte (sy tht rte chievble on six-month Tresury bills) plus premium bsed on mrket vribility of return X mrket risk premium. In Winter 1991, the mrket risk premium on listed U.S. common stocks ppers to hve been bout 6.5%, ccording to sttistics published in the Qurterly Review, Winter 1991, by the Federl Reserve Bnk of New York (though the Ibbotson study found it to exceed 8% from the mid 1920s through 1987). Thus in period of 4% infltion, the T-bill rte might be ppropritely...

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about "Capital Asset Pricing Model"
CAPM holds that investors are operating in a perfectly capital market and all securities are valued accurately. If we plot the returns on the Security Market Line than none of the returns will be above or below the SML Line. A perfect capital market assumes that information is freely available to all the investors who have homogenous expectations....

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