Capital Asset Pricing Model

Capital Asset Pricing Model (CAPM)

Capital Asset Pricing Model (CAPM)

Capital Asset Pricing Model (CAPM) shows the relationship between the expected return and systematic risk. As far, it is known that the expected return means the mean or average of the return and systematic risk is the risk that cannot be diversified.

Capital Asset Pricing Model CAPM

Limitations of the Capital Asset Pricing Model (CAPM)

  1. Difficult to Measure Risk
  2. Unrealistic Assumptions
  3. Betas Remain Unstable Over Time
  4. Validity Difficulties

Difficult to Measure Risk

The most significant limitation of CAPM is to calculate the risk as well as measure of risk in the equation method because CAPM is only derived to measure the expected rate of return by using the risk free rate, market return and beta coefficient where the beta coefficient …

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