Portfolio Management 7 CAPM
Portfolio Management 7 CAPM
Portfolio Management 7 CAPM
Management and
Wealth Planning
CAPM
Capital Asset Pricing Model
(CAPM)
Harry Markovitz laid down the foundation of modern
portfolio management in 1952. Nearly 12 years later,
The CAPM was introduced by Treynor (1961, 1962),
Sharpe (1964), Lintner (1965a,b) and Mossin (1966)
independently, building on the earlier work of
Markowitz on diversification and modern portfolio
theory.
Sharpe, Markowitz and Miller jointly received the 1990
Nobel Memorial Prize in Economics for this contribution.
ASSUMPTIONS
P – 50 + 6 = 50 * 0.18
P = 53 $
((53-50) + 6)/50 = 0.18
Portfolio Betas
Portfolio Beta
The beta of a portfolio; calculated as the weighted
average of the betas of the individual assets the
portfolio includes
To earn more return, one must bear more risk
Only nondiversifiable risk (relevant risk) provides a
positive risk-return relationship
Portfolio Betas