latamen

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 capital asset pricing model formula for calculating expected return is:

Quantitative investing
Quantitative investing

We’ve been leading the way in quant investing for over 25 years, turning research into practical solutions.

Read more

The Capital Asset Pricing Model 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 capital asset pricing model showed that the relationship between risk and return is less strong than the theory indicates.

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

Value ain’t dead
Value ain’t dead
Value stocks have underperformed growth stocks over the past decade.
20-05-2020 | From the field
Podcast: Some factors are more equal than others
Podcast: Some factors are more equal than others
Is Value broken?
14-05-2020 | Podcast
Now more than ever, it’s time to think outside the Fama-French factor box
Now more than ever, it’s time to think outside the Fama-French factor box
2010-2019 was a lost decade for the Fama-French factors.
28-04-2020 | Research