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Asset Pricing Models Essay Examples

The Relevance of Portfolio Theory and the Capital Asset Pricing Model in the Equity Markets
Essentially, the Capital Asset Pricing Model establishes a relationship between the risk and the return of an asset, and the premium it commands over the risk-free rate of return. Before one can understand CAPM, however, one must understand the concept of betas. Beta is a coefficient...
Pages: 8 (2000 words) , Coursework , Finance & Accounting
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Discussion on the CAPM and the APT Models
This article was published in “Portfolio Section”. For his body of work which introduced the concept of risk in portfolio selection, he was awarded the Nobel Prize in economics in 1990. By the 1960s, several financial economists were intrigued by the idea of a systematic...
Pages: 12 (3000 words) , Assignment , Macro & Microeconomics
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Empirical Approaches to Asset Pricing
There are various errors in the application of CAPM. Firstly the model may be inadequate in the description of financial market behavior. Another shortcoming of this model is that the betas do not remain stable through time. This creates problems when the value of beta...
Pages: 7 (1750 words) , Case Study , Macro & Microeconomics
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Evaluate the predictability of excess stock returns
This is basically an activity which, though much important for planning by the investors, it should not be assumed that there will be always a similar market behavior. This is because the response of the people to the stock market is not always the same...
Pages: 6 (1500 words) , Coursework , Finance & Accounting
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Main Concepts behind the Capital Asset Pricing Model
The model also considers the markets expected return and the theoretical risk-free assets expected return. CAPM draws from the portfolio theory developed by Harry Markowitz (1959). The formula of calculating expected return of an asset portfolio using the CAPM model is given as E(Ri) =...
Pages: 7 (1750 words) , Term Paper , Finance & Accounting
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The Relevance of the Capital Asset Pricing Model for Making Investment Decisions
The equilibrium return on risky assets can be determined using the capital asset pricing model. If we consider capital markets to be continuously in equilibrium, with price changes over time reflecting the instantaneous adjustment to new equilibrium, and focus on the market portfolio, that is...
Pages: 8 (2000 words) , Coursework , Finance & Accounting
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The Main Advantages of the CAPM: Industry Standard
The regression analysis of a project discloses that the size of a company in the cost of equity capital influences the efficiency of the firm. Even though the CAPM has been adopted by economists to enhance investment decisions in the stock market, it has been...
Pages: 8 (2000 words) , Statistics Project , Business
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Characteristics of Japanese Finance
Only the formal model will be presented here. The informal description of the model can be seen in Babies et al (1998: pp 318-321). The model is based on the assumption that there is only one security and one investor. It is also assumed that...
Pages: 9 (2250 words) , Literature review , Finance & Accounting
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Shareholder Value as Strategic Marketing Evaluation Framework
Some strategic decisions (entering new markets, increasing sales capacity, etc.) need shareholder approval as these may require capital investments that affect profits, while most tactical marketing decisions (like advertisements, promotional campaigns, etc.) do not. Since shareholders are after increasing the value of their investment, they...
Pages: 8 (2000 words) , Coursework , Marketing
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Financial Modelling Report
This relationship is not very strong where beta is very high because investors tend to accept low return from high beta considering that low beta securities require the use of leverage. From figure 2 below, the positive relationship between these two variables appears to be...
Pages: 8 (2000 words) , Essay , Finance & Accounting
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Economics of Development
This paper illustrates that one of the frequent reasons for business failure is poor management and insufficient and poor management of financing comes second. For starting or relocating or expanding a business sufficient capital is required. Having good financing is not enough in attaining profits;...
Pages: 7 (1750 words) , Essay , Finance & Accounting
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The Capital Assets Pricing Model
The introductory part of this paper sets the principal arguments underlying this study. The most important themes needed to be discussed have also been introduced. The remaining part of the paper will be structured as follows. Section two of the paper discusses the theoretical framework....
Pages: 12 (3000 words) , Research Paper , Management
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The Economics of Financial Markets: Asset Prices Variability and Pricing Model
The main aim of this section is to develop the net present value relationship. The net present value equation is open to misapprehension but if the equation is developed carefully, it provides several in-depth information about evaluation of asset prices as well as enlightens few...
Pages: 14 (3500 words) , Essay , Finance & Accounting
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The stock returns for Bank Osborne
A multifactor model can either be from APT or from a multi-beta CAPM perspective. The named models tries to answer the questions of whether the market return is the only factor that explains variations in stock returns and the question then is: what extra-market factors...
Pages: 16 (4000 words) , Dissertation , Finance & Accounting
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Why Is Pricing Momentum Based on Past Stock Performances
Theoretically, inefficient financial markets, there won’t be an excess profit margin for investors, thus illustrating that price momentum is compensation for bearing the risk associated with the awareness or unawareness of investors. It is very visible that the hypothesis of efficient markets is much contrary...
Pages: 9 (2250 words) , Assignment , Finance & Accounting
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The Theory of Asymmetric Information in Economics
Research methodology will be based upon combining both the qualitative as well as quantitative research methods. Qualitative research will involve a detailed review of the available literature on the chosen topic. A survey methodology will be adapted to critically analyze and explore the existing themes...
Pages: 10 (2500 words) , Literature review , Finance & Accounting
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The impact of moral hazard on stock market in financial crisis
Information asymmetry has been attributed to be an originating cause of moral hazard (Holmstrom, 1979). This means that during a financial transaction one party has more information than the other for utilization and return on the funds transacted and this party can be considered risk...
Pages: 28 (7000 words) , Dissertation , Finance & Accounting
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Stockmarket efficiency and portfolio management
To investigate whether indeed efficient markets affect the decisions of portfolio managers in making investment decisions and the extent and impacts of such influence in earnings performance.Analyses of the impact of efficient stock markets and the EMH have also dominated literature. Bachelier (1900) produced a...
Pages: 22 (5500 words) , Dissertation , Finance & Accounting
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The Risks and Profits of Risk Arbitrageurs
The deals’ success rate is affected by a low market liquidity condition.  In a situation where the market liquidity condition is very low, the merger & acquisitions arbitrageurs face huge losses in situations where the deals fail. If the market liquidity rate is higher, those...
Pages: 29 (7250 words) , Dissertation , Professional
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The Capital Asset Pricing Model and Assumptions
Fama and French Model of portfolio management are developed by Eugene Fama and Kenneth French and it is very useful in describing the behavior of the capital market. It is also known as the ‘three Factor Model of Fama and French’. Basically, this model is...
Pages: 8 (2000 words) , Case Study , Business
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The Relative Merits of the Capital Asset Pricing Model
The most visible merit of CAPM is its simplicity. It is constructed based on the portfolio theory that makes it easy to understand. CAPM distinguishes between systematic and unsystematic risk and ultimately depicts a simple pricing model. CAPM discovers one of the most important findings...
Pages: 12 (3000 words) , Research Paper , Finance & Accounting
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Portfolio Theory and Capital Asset Pricing Model
If we assume that risk-free borrowing and lending are allowed then the efficient set turns into a straight line starting from Rf and extending to the point tangent to T. Now the understanding of CAPM is relatively simple. Assuming all the investors have homogenous expectations...
Pages: 7 (1750 words) , Case Study , Finance & Accounting
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Multi-Period Cash Flows and Capital Asset Pricing Model
According to Fama (1970), multi-period investment consumption can be associated with an individual's wealth. This process is cyclical and can vary in allocation depending on the priorities of the individuals. The decision of whether to consume or investment has to be made at the beginning...
Pages: 10 (2500 words) , Research Paper , Finance & Accounting
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Relative Merits of the Capital Asset Pricing Model and Empirical Approaches to Asset Pricing
It is quite important to state that cost-of-capital models generally assume that markets are efficient. Under the efficient market hypothesis, in an efficient market, the current price exhibits all the relevant information. Thus any information which is used for pricing can be used as a...
Pages: 7 (1750 words) , Case Study , Finance & Accounting
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Relative Merits of the Capital Asset Pricing Model
In the 1960s, William Sharpe (1964), Treynor (1961) and Lintner (1965), independently arrived at the development of a model that extended the asset pricing theory of Harry Markowitz, linking the risk and return of stocks. This model is best known as the Capital Asset Pricing...
Pages: 8 (2000 words) , Case Study , Macro & Microeconomics
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The Relevance of Portfolio Theory and the Capital Asset Pricing Model to an Investor
During the last decade, the development of investment tools available to investors and fund managers worldwide has been extremely rapid; still, there are issues that have not been addressed. The fact that the increase of investment is continuous cannot be used to justify the means...
Pages: 7 (1750 words) , Coursework , Finance & Accounting
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The Capital Asset Pricing Model as the Sterile Offspring of Advanced Mathematics
It is quite essential to state that it is impossible for all investors to have the same estimates of the expected values of assets, contrary to the third assumption; or, contrary to the fifth and sixth assumptions, the realities of business transactions is that there...
Pages: 8 (2000 words) , Coursework , Finance & Accounting
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Using the Capital Asset Pricing Model
The computation of NPV for the third option which is to build a new facility. Consistent, with the case, the NPV computation is limited only to 15 years even though the company can use the facility indefinitely. Thus, at the end of 2021, this paper...
Pages: 7 (1750 words) , Essay , Finance & Accounting
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The Use of Capital Asset Pricing Model at Tullow Oil
The return of a portfolio is a weighted average return of all the stocks present in our portfolio. In our case there are three shares in our portfolio, therefore, the return will be the weighted average rate of return of the three stocks. In the...
Pages: 6 (1500 words) , Case Study , Finance & Accounting
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Important Issues Concerning the Capital Asset Pricing Model Theory
Since stocks аre bought on the bаsis of expected returns for the next yeаr, а perceived shift in the rаte of inflаtion will send most common stocks to higher or lower levels. Strength of the overаll economy, the sector in which the firm operаtes, its...
Pages: 10 (2500 words) , Coursework , Finance & Accounting
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The Capital asset pricing model (CAPM) is a very useful model and it is used widely in the industry even though it is based on very strong assumptions. Discuss in the light of recent developments in the area
Firstly, the model is based on an ineffective assumption; that of a single period time horizon, which makes it inefficient in the evaluation of multi-period appraisal investment. Secondly, the CAPM model is founded on some unrealistic assumptions such as the no taxes or transaction costs....
Pages: 7 (1750 words) , Essay , Finance & Accounting
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The Capital asset pricing model (CAPM) is a very useful model and it is used widely in the industry even though it is based on very strong assumptions. Discuss in the light of recent developments in the area
The supporters of the model postulate that the capital market functions as though the above assumptions were met. The model derives the price to be commanded by any asset to make the investors happy to retain the present market portfolio.Under the CAPM, each person carries...
Pages: 7 (1750 words) , Essay , Finance & Accounting
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Modern pricing models
CHAPTER ONE: THE GEOMETRIC BROWNIAN MOTION (GBM) Definition and the History of the GBM In every financial modeling for pricing options, the main purpose of applying the financial model is through the determination of correct prices of options. The geometric Brownian motion is an assumption of...
Pages: 12 (3000 words) , Essay , Mathematics
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The modern pricing models (GBM,Merton model ,Heston model )
The main disadvantage of the bond prices is that, most of the time, they serve as indicators, and not the firm quotes. Moreover, the credit spread that is calculated from the price of the bond depends on the liquidity of the bond and therefore involves...
Pages: 17 (4250 words) , Dissertation , Mathematics
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Existence and Stability of Equilibrium in an Islamic Economics
Specifically, the evaluation is done on the canals where the monetary policy changes the rate of return on the real and financial assets, hence affecting the output, balance of payment, and output. The paper discusses the equilibrium model for the Islamic economy. The model illustrates...
Pages: 10 (2500 words) , Essay , Mathematics
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Modern pricing model
As such, Bates, the inventor of the model, developed the model as an improvement of the two models of stochastic volatility analysis. Therefore, the Bates volatility model looks out especially at the determination and examination of pricing options in a finite element approach. This model...
Pages: 11 (2750 words) , Dissertation , Mathematics
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CAPM - the Model Furnishing Improved Technique for Integrating Market Info Linked to the Asset Prices
Risk is best adjudicated in the context of a portfolio of securities. Part of the ambiguity about a surety’s return is branched out when security is sorted with other assets in a portfolio. It can be said that diversification is the best for the investors...
Pages: 8 (2000 words) , Term Paper , Finance & Accounting
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Modern Portfolio Theory
The efficient frontier theory argues that portfolios made up of just one asset are inefficient – the better performing portfolios would always turn out to be the ones that are efficiently diversified – except when no other portfolio of assets can deliver a higher expected...
Pages: 6 (1500 words) , Assignment , Business
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The Most Common Model for Valuating American Options
An American Option can be exercised at any time up to and including the expiry date of the option. This added flexibility to the option resulting in American options being considered as more valuable, even though in many cases the values can be very comparable...
Pages: 6 (1500 words) , Term Paper , Finance & Accounting
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Analysis of the Relative Merits of the CAMP, FAMA and French Mode
The Fama-French Model has proved to be the most viable challenge towards the CAPM. Empirical evidence proves that the multi-factor Fama-French model has certain advantages over the CAPM because CAPM assumes that investors price only the market risk. Evidence shows there are a number of...
Pages: 6 (1500 words) , Research Paper , Finance & Accounting
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Financial Statement Reformulation and Equity Valuation of the CRUF Group
It is quite essential to state that the financial performance would focus on the number of profits each of these three activities that contribute to the overall company objective of generating net profits. In addition, the CRUF group rightfully requested that only one financial reporting...
Pages: 17 (4250 words) , Case Study , Finance & Accounting
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Arguments against the Measurement and Valuation of Intantible Assets
The accountants and the auditors have had numerous questions regarding the measurement and valuation of the intangible assets and they have spread their work regarding the issues of accounting of Intangible assets:In a research carried out by Jason Schloetzer (1996), it was argued that intangible...
Pages: 8 (2000 words) , Term Paper , Finance & Accounting
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What is the CAPM and of what practical use is it
This is no matter how good they are at diversifying their investments. However, Groppelli and Nikbakht (2012) are quick to point that all investors normally deserve a rate of return for their investments. This is because a rate of return for their investments...
Pages: 6 (1500 words) , Essay , Finance & Accounting
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What is the CAPM and of what practical use is it
CAPM and Its Practical Use CAPM refers to the capital asset pricing model, a widely adopted model within the financialfield in order to determine the value of the appropriate rate of return for an asset. Generally speaking, the model has been extensively adopted by portfolio...
Pages: 6 (1500 words) , Essay , Finance & Accounting
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Chinese Enterprise Overseas Mergers & Acquisitions: What are the Differences between Chinese State-Owned Enterprises (SOEs) and Chinese Private-Owned Enterprises (POEs) (Differences in Motivation, Operation and Strategic position)
In opposite accord, this study found that privately-owned Chinese enterprises are more concerned with market-seeking objectives utilising marketing-based strategies as a means of achieving influence and experience improvement for new foreign market entry.Mergers occur when one enterprise unites with another to form a single business...
Pages: 56 (14000 words) , Dissertation , Business
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Explanation of Beta Factor
Beta is the measurement of a security’s explosive nature in the market or rather it is the systematic risk associated with a security. It is considered that the beta of the market is 1 and stocks are ranked according to their deviation from the market....
Pages: 6 (1500 words) , Essay , Finance & Accounting
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Limitation of Efficiency in Market
The strict interpretation of the ‘Efficiency Market Hypothesis’ implies that in an efficient market, stock prices are supposed to reflect all the available information. However, a considerable part of the academia has adopted a bit modified version of ‘market efficiency’.  The academic community believes in...
Pages: 13 (3250 words) , Term Paper , Marketing
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Required Return on Equity and Cost of Capital
If the initial public offering is already considered costly, seasoned equity offerings also have some shortcomings. For one, after SEO, it is very usual that the stock price of the company gets lower because of the increase in price. There is a period of time...
Pages: 8 (2000 words) , Case Study , Management
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Definition and Explanation of Uncertainty on the Market
The method of determining the value of assets varies between assets and the associated uncertainty plays its role in the valuation process but the core principle remains the same for all types of assets. In order to price particular types of investment, various methodologies are...
Pages: 12 (3000 words) , Coursework , Marketing
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Financial management
Company Performance The section of the report present analyzes the financial performance of Caterpillar Inc using financial competitor Johnson & Johnson are analyzed for a comparative analysis of the performance of Caterpillar with its competitor. Therefore, financial ratios to determine financial positioning, performance and efficiency...
Pages: 20 (5000 words) , Essay , Management
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