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Research of Theory and Application of Capital Assets Pricing Model

Author: GaoZhiGang
Tutor: HuZeCheng
School: Wuhan University of Technology
Course: Systems Engineering
Keywords: Capital Asset Pricing Model Portfolio Security Market Line Fund separation theorem Efficient Market
CLC: F830.9
Type: Master's thesis
Year: 2003
Downloads: 1078
Quote: 1
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Abstract


The capital asset pricing model (CAPM) is based on Markowitz's portfolio theory, American economist Sharpe, Lintner and Mossin developed a theory of risk-related securities pricing method is a pure exchange economy equilibrium pricing model. CAPM model reveals the relationship between risk and return, that is, a the securities gains its risks linear relationship, as well as the Securities equilibrium price formation mechanism. Securities investment risk is divided into: systemic risk and systemic risk. The CAPM think non-systemic risk can be eliminated through portfolio diversification, and systemic risk is dispersed. Therefore, the systemic risk is an important part of the securities portfolio risk, it is necessary to concentrate on its evaluation. Systemic risk is measured by β, the choice of investment strategy, that is, depending on the level of β value for the transfer. If the investor is willing to assume greater risk, he can choose the portfolio beta value higher stocks, such a combination of the expected rate of return will be more than the market average expected rate of return; if investors are more conservative, you can choose β in combination stock values ??lower, although the decrease in revenue, but few take the risk of a little market movements. CAPM is considered to be the backbone of modern price theory for financial markets, it has been widely used in the economic analysis, to solve the general problems in the investment decision-making, can get the system and effective use of financial statistics. Especially in Western countries, it is characterized by a concise answer will hinge on the major issues related to the relationship between risk and return. CAPM also provides a mechanism for investors. Investors according to the systemic risk of the assets rather than total risk of a variety of financial assets to select investors by authoritative index to determine the expected rate of return of the market portfolio, and calculate the choice of the individual asset β coefficient, in accordance with Treasury bills or other appropriate government bonds to determine the risk-free rate of return, very practical, and become an important basis for decision-making in different areas. The core idea of ??the CAPM is the pricing of the securities in a competitive equilibrium. The original the CAPM main discussion the problem of equilibrium in the capital market, and assume that remove many of the real problems that exist in these markets. Since then, many economists to expand and adjust the model, in order to accommodate the many real factors in the capital markets. Since the seventies and eighties, CAPM development from a single period to a multi-period, and from the multi-phase development of the continuous-time model. The Western scholars CAPM done a large number of empirical studies, these studies show that the revenue structure of the financial markets, CAPM can provide fairly good approximation. And in areas such as capital cost estimate, predict stock returns, portfolio performance evaluation and event analysis has been widely used. Domestic scholars, while the introduction of foreign research scholars, but also made some empirical test of China's securities market, and put forward some new ideas and theories. In this thesis, the research results on the basis of carefully summarize scholars CAPM, demonstrating the the CAPM theory development direction commentary the CAPM its progress and stock markets in Shanghai and Shenzhen stock markets Empirical research of the two stock markets characteristics and risk analysis, analysis of the CAPM whether able to evolve to be applied to China's financial markets and other issues, and finally put forward some new ideas and targeted policy recommendations to guide the healthy development of China's financial market has some theoretical significance and practical significance.

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CLC: > Economic > Fiscal, monetary > Finance, banking > Finance, banking theory > Financial market
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