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Research Of Theory And Application Of Capital Assets Pricing Model

Posted on:2004-04-23Degree:MasterType:Thesis
Country:ChinaCandidate:Z G GaoFull Text:PDF
GTID:2156360092497878Subject:Systems Engineering
Abstract/Summary:PDF Full Text Request
Capital Assets Pricing Model (CAPM) has been forward on the basis of Markowitz's portfolio theory by American economists Sharpe, Lintner and Mossin, which is a equilibrium pricing model in pure exchanging economy. CAPM reveals the relationship between risks and returns, which is liner. And it explains how security equilibrium prices.Portfolio risk is divided into systematic risk and systematic risk CAPM thinks that unsystematic risk can be dispelled through portfolio's diversification, but systematic risk can't. Systematic risk is so important part of portfolio risk that there is need to be evaluated carefully. Systematic risk is measured by Beta. The selection of investment strategies is altered with Beta-value. If an investor is willing to run a higher risk, he may select stocks with higher Beta-value and at this time his expected returns will is over average market expected returns; If an investor is conservative, he may select stocks with lower Beta-value. Though returns lessen, he can take fewer risks of market changing.CAPM is regarded as the spine of modern price theory in financial market. It has been already applied widely to economic analysis, and resolves ordinary questions of investment decisions, and has made rich financial statistics data to be used systematically and effectively. Particularly in west developed countries, its characteristics are that it answers briefly important questions of the relationships between risks and returns. And CAPM provides investors with a system, which investors can select varieties of financial assets according to systematic risk but no total risk. Investors may use authoritative integrate index to determine expected returns of market portfolio, and compute factor Beta of single asset selected. And investors decide nom-risk returns on treasury bills or other suitable government bonds. Its practicability is so widely that it is the foundation of decisions in various fields.The central idea of CAPM is about security pricing in a competitive equilibrium. Original CAPM disputed chiefly equilibrium questions in capital market, but assume to get rid of these real issues lying in the market. Then many economists adjust this model to contain many real factors in capital market. From 1970s then on, CAPM is developed from single period to intertemporal, and from it to multiperiod model.West scholars have done many empirical studies. Totally these empirical studies show that CAPM is perfectly similar to the yield structure of financial market. It applies to many aspects such as the evaluation of capital costs, stock returns forecasting , the valuation of portfolio performance and event studies. Many domestic scholars have introduced foreign studies fruits, and done empirical tests in our stock market, and brought forward some new views and theories.This paper will generalize theories and applications of CAPM that foreign and domestic scholars put forward. Then it reviews whether our financial market corresponds with CAPM, and whether CAPM can evolve to apply to it. It does empirical tests in our security market, and evaluates the characteristics of two stock markets. It gives some new views and policy suggestion. It is practical sense to direct our financial market to develop healthily.
Keywords/Search Tags:CAPM, portfolio, security market line, funds separate theorem, efficient market
PDF Full Text Request
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