Outline the basic content of the Capital Asset Pricing Model (CAPM) and its practical implications.

The basic content of the Capital Asset Pricing Model (CAPM) is to study the quantitative relationship between the expected rate of return on assets and risky assets in the securities market, i.e., in order to compensate for a particular degree of risk, how much the investor should get the rate of return, and how the equilibrium price is formed.

The practical significance of the capital asset pricing model is applied to the valuation of assets, the cost of capital budgeting and resource allocation, etc., is the pillar of the modern financial market price theory.

The CAPM model has been generally recognized in the securities theory community, the model is mainly on the security return and the sensitivity of the changes in the market portfolio returns to analyze the model, to help investors to decide whether the additional return received with the risk of the middle. risk.

Expanded:

CAPM is the most widely recognized model in securities theory. p>According to the CAPM, the Beta coefficient is a measure of the systematic risk of an asset, and is used to measure the volatility of a security or a portfolio relative to the overall market. beta indicates the degree to which individual asset returns move simultaneously relative to changes in market returns, and is a standardized measure of the contribution of a single asset to the variance of a market portfolio.

That is, if a stock's price is in line with the market's price volatility, then the stock's beta is 1. If a stock's beta is 1.5, that means that when the market rises by 10 percent, the stock's price rises by 15 percent, and when the market declines by 10 percent, the stock's price declines by 15 percent. This is calculated by statistically analyzing the daily returns of the market over the same period of time, as well as the daily price returns of individual stocks.

Baidu Encyclopedia-Capital Asset Pricing Model