Capital asset pricing model In finance, the capital asset
pricing model (CAPM) is used to determine a theoretically
appropriate required rate of return of an asset, if that asset
is to be added to an already well-diversified portfolio, given
that asset's non-diversifiable risk. The model takes into
account the asset's sensitivity to non-diversifiable risk (also
known as systematic risk or market risk), often represented by
the quantity beta (β) in the financial industry, as well as the
expected return of the market and the expected return of a
theoretical risk-free asset. The model was introduced by Jack
Treynor (1961, 1962), William Sharpe (1964), John Lintner
(1965a,b) and Jan Mossin (1966) independently, building on the
earlier work of Harry Markowitz on diversification and modern
portfolio theory. Sharpe, Markowitz and Merton Miller jointly
received the Nobel Memorial Prize in Economics for this
contribution to the field of financial economics. The formula
The CAPM is a model for pricing an individual se