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The Market Model and Capital Asset Pricing Theory: A Note
Author(s) -
STAPLETON R. C.,
SUBRAHMANYAM M. G.
Publication year - 1983
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1983.tb03846.x
Subject(s) - capital asset pricing model , security market line , consumption based capital asset pricing model , arbitrage pricing theory , investment theory , economics , normality , econometrics , multivariate statistics , portfolio , capital market line , financial economics , market portfolio , modern portfolio theory , mathematics , stock market , market depth , statistics , paleontology , biology , horse
This note shows that a linear market model is sufficient to derive a linear relationship between beta and expected return. Furthermore, the slope of the relationship will be identical with that of the Capital Asset Pricing Model if the return on the market portfolio is normally distributed. However, results from characterization theory suggest that the linear market model assumption is close to that of multivariate normality.