Capital asset pricing model: Its use in investment decisions.
As a theoretical framework, the capital asset pricing model (CAPM) enables investment professionals to evaluate the relationship between risk and return.
However, despite its prevalence within the market, Pike and Neale (2003) argue that that the true validity of CAPM cannot be tested for so to do would require the evaluation of a market portfolio consisting of every single asset available. Accordingly, this dissertation seeks to evaluate the on-going appropriateness of Pike and Neale’s critique of CAPM in the context of the events since the unfolding financial crisis began in 2007 and through so doing to suggest the extent to which continued reliance upon CAPM is appropriate within the investment market.
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