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The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).

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Capital Asset Pricing Model

The Capital Asset Pricing Model (CAPM) is the product of a financial investment theory that reflects the relationship between risk and expected return. The model assumes a linear relationship.

The formula for calculating expected return is:

The CAPM is used to forecast returns that can be obtained with risk-bearing asset classes. The linear relationship means that taking extra risk will on average lead to higher returns.

However, empirical tests performed in the early seventies* with this model showed that the relationship between risk and return is less strong than the theory indicates.

* The first study performed by Haugen and Heins: ‘On the Evidence Supporting the Existence of Risk Premiums in the Capital Market’ (1972), demonstrates that over the period 1929 - 1971, low-volatility equities realized extra risk-adjusted returns.