IDEAS home Printed from
   My bibliography  Save this article

The arbitrage theory of capital asset pricing


  • Ross, Stephen A.


The purpose of this paper is to examine rigorously the arbitrage model of capital asset pricing developed in Ross [13, 14]. The arbitrage model was proposed as an alternative to the mean variance capital asset pricing model, introduced by Sharpe, Lintner, and Treynor, that has become the major analytic tool for explaining phenomena observed in capital markets for risky assets. The principal relation that emerges from the mean variance model holds that for any asset, i, its (ex ante) expected return$E_i = p + \lamdba b_i, \kern+100pt (1)$where ρ is the riskless rate of interest, is the expected excess return on the market, Em − ρ, and$ b_i - \,\sigma _{im}^2 /\sigma _m^2 , $is the beta coefficient on the market, where σm2 is the variance of the market portfolio and $ \sigma _{im}^2 $ is the covariance between the returns on the ith asset and the market portfolio. (If a riskless asset does not exist, ρ is the zero-beta return, i.e., the return on all portfolios uncorrelated with the market portfolio)…
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
  • Handle: RePEc:eee:jetheo:v:13:y:1976:i:3:p:341-360

    Download full text from publisher

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jetheo:v:13:y:1976:i:3:p:341-360. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.