Connotations of the three key assumptions of modern financial market theory

The connotation is that investor rationality precedes the efficient market hypothesis and the random walk hypothesis. Capital Asset Pricing Theory: In financial markets, almost all financial assets are risky assets. Rational investors always seek to maximize investor utility, i.e., maximize return at the same level of risk or minimize risk at the same level of return.

Capital Asset Pricing Theory is a complete theoretical system developed in the 1950s, which studies the equilibrium market price of risky assets.

The theory suggests that investors can only influence the risk premium by changing their risk appetite, i.e., "they can only seek higher returns by taking greater risks".