StudentShare solutions
• Home
• Subjects
• Miscellaneous
• Critically analyse the capital asset pricing model (CAPM) and arbitrage pricing theory (APT) models.your analysis may include drawing simlarities ,difference and weakness of the models in relation to real life practical situations .MBA FINACCE SUBJECi

# Critically analyse the capital asset pricing model (CAPM) and arbitrage pricing theory (APT) models.your analysis may include drawing simlarities ,difference and weakness of the models in relation to real life practical situations .MBA FINACCE SUBJECi - Assignment Example

## Extract of sample Critically analyse the capital asset pricing model (CAPM) and arbitrage pricing theory (APT) models.your analysis may include drawing simlarities ,difference and weakness of the models in relation to real life practical situations .MBA FINACCE SUBJECi

Various mathematical models have been developed in order to determine the true value of financial assets. Two of these models, the Capital Asset Pricing Theory and the Arbitrage Pricing Theory, have emerged as two of the most widely accepted methods by which returns may be determined and valuation models developed from these returns (Malevergene & Sornette, 2007). However, as much as they have had loyal followers, there have also been criticisms forwarded by researchers on the validity of these models (MacKinlay, 1995). The models and the criticisms about them shall will be examined in this study.
The models are based on the theory that the basis for choosing assets for investments relies on whether or not they interact with one another, whether they balance each other’s risks, instead of looking at their individual performance when taken individually or in isolation (Scott, 2003). The portfolio theory provides the basis of the CAPM and the APT, and it states that an optimal portfolio is the combination of assets that provides the investor the highest return for the least possible risk level for a specified return (Constantinides & Malliaris, 1995).
The Arbitrage Pricing Theory and the Capital Asset Pricing Model do not owe its existence to a single person or a single effort, but was developed over the years by researchers’ independent inquiry. In the late 40s, Harry Markowitz, a graduate student in economics with a penchant for mathematical processes, was developing his dissertation on the stock market. Originally, he was fashioning his paper after the present value model of John Burr Williams. Halfway through, however, Markowitz realized that Williams failed to account for the impact of risk in his model. His insight into this vital role played by risk analysis in the valuation of portfolio assets led to Markowitz’s now famous ...Show more

## Summary

Generally, investors are averse to unreasonable or indeterminable risk (Block & Hirt, 2006). However, if no risk exists, then prices…
Author : bmiller
Save Your Time for More Important Things
Let us write or edit the assignment on your topic
"Critically analyse the capital asset pricing model (CAPM) and arbitrage pricing theory (APT) models.your analysis may include drawing simlarities ,difference and weakness of the models in relation to real life practical situations .MBA FINACCE SUBJECi"
with a personal 20% discount.
Grab the best paper

### Check these samples - they also fit your topic

Portfolio Theory's Underpinning Principles Need to Be Uncovered before Appreciating the Ceration of Capital Asset Pricing Model
There is a famous saying that one should not place all the eggs in one basket. The concept of portfolio also came from this saying which means that one should not make all the investment in one asset or security and should diversify the investment by investing in a group of assets so that the loss from one security can be compensated by the gain of the other security.
6 pages (1500 words) Assignment
Empirical Asset Pricing Theory
This paper will outline how this method of valuing an asset fits to be a factor pricing model. This will entail discussing the assumptions relating to the form of stochastic discount model as well as how the factor method is related to the acquiring of equilibrium risk premium.
6 pages (1500 words) Assignment
Capital Asset Pricing Model
The CAPM model therefore relies on the ability to measure market volatility as a whole. With several possible investments available in the market, the model assumes that one can accurately assess the volatility of each of these investments. This is impossible.
4 pages (1000 words) Assignment
Asset Pricing Issues
Whilst some of these data may be due to data-snooping from the analytical work of armchair researchers attempting to discern some meaning to what could just be a simple collection of facts, much of the empirical data such as beta, stock volatility, co-variances, etc.
4 pages (1000 words) Assignment
Critically analyse the relative merits of the Capital Asset Pricing Model and empirical approaches to Asset pricing (such as FAMA and French model)
The objective of the study is to critically analyse the merits of the CAPM, the challenges that this is facing in the global economy and also to focus on the other
6 pages (1500 words) Assignment
Portfolio Theory's underpinning principles need to be uncovered before appreciating the ceration of capital asset pricing model ( CAPM ), Evaluate the reason why investors should establish portfolios
stment in one asset or security and should diversify the investment by investing in a group of assets so that the loss from one security can be compensated by the gain of the other security. The gain achieved from one asset can offset the loss incurred from the other only if
6 pages (1500 words) Assignment
Capital Asset Pricing Modfel slp
Beta measures the risks of investments that cannot be diversified away in any way. It measures the amount of risks that an investment adds to a portfolio that is already diversified and not investment
2 pages (500 words) Assignment
Capital Asset Pricing Model
The risk free rate is the government bond ideally, that has a fix ten years. The Beta is the true measure of the risk that is in the stock that one has invested on. With the risk in it, measure the volatility of the investment. It is in this
1 pages (250 words) Assignment
A central assumption made in Mean-Variance Analysis and the Capital Asset Pricing Model (CAPM) is that investors prefer to invest in the most efficient portfolios available
To start with, we will understand the concept of an efficient portfolio as described below. Most investors, according to mean-variance analysis and asset pricing model, tend to invest in a more efficient portfolio
6 pages (1500 words) Assignment
Pricing Analysis Paper
a) The effect of change in fixed price on the profit maximizing point in addition to profit , revenue, and elasticity at the point of maximum profit is that the total cost will increase . This means ultimately the breakeven point will
2 pages (500 words) Assignment
Click to create a comment
Let us find you another Assignment on topic Critically analyse the capital asset pricing model (CAPM) and arbitrage pricing theory (APT) models.your analysis may include drawing simlarities ,difference and weakness of the models in relation to real life practical situations .MBA FINACCE SUBJECi for FREE!