Capital Asset Pricing Model (CAPM)

The capital asset pricing model (CAPM) was developed in the 1960s by William F. Sharpe, John Lintner and Jan Mossin.

The CAPM builds on the modern portfolio theory (MPT). One important upgrade delivered by the CAPM is the simultaneous calculation of stock market equilibrium prices. As an equilibrium model, it describes the linear connection between the hoped-for profits and the risk of an investment.

As a model, the CAPM is typically used in stock valuations, asset allocation and company valuations.

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