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Application and Thinking about Capital Asset Pricing Model

In: Proceedings of the 2022 2nd International Conference on Economic Development and Business Culture (ICEDBC 2022)

Author

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  • Jianing Chen

    (Jinhua No, High School)

Abstract

In the mid-1960s, the equilibrium asset pricing theory, marked by Sharpe-Lintner-Mossin, was born. Because of its ability to clearly elucidate the relationship between the expected return on assets and risk, CAPM has been widely used in various aspects of portfolio-at-risk performance assessment, securities pricing, capital budgeting, and public utility stock management. After many years of development, the status of CAPM is unshakable in the capital market. However, while the CAPM model is supported by many scholars, it is also questioned because of its stringent assumptions. In this case, the paper introduces the defining formula and assumptions of the model and provides some exploration of the model in the capital market and other application scenarios. Then, the author discusses the limitations that the model may face in practical applications. Ultimately, in the current situation of the Chinese capital market, the author found that the applicability of the CAPM model in China is still limited for many reasons and deserves further study.

Suggested Citation

  • Jianing Chen, 2022. "Application and Thinking about Capital Asset Pricing Model," Advances in Economics, Business and Management Research, in: Yushi Jiang & Yuriy Shvets & Hrushikesh Mallick (ed.), Proceedings of the 2022 2nd International Conference on Economic Development and Business Culture (ICEDBC 2022), pages 52-56, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-036-7_9
    DOI: 10.2991/978-94-6463-036-7_9
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