Analysis and Comparison of Capital Asset Pricing Model and Arbitrage Pricing Theory Model

DOI

10.2991/978-94-6463-098-5_213How to use a DOI?

Keywords

Capital asset price model; Arbitrage pricing theory; Multi-factor model; Comparison; Mathematical finance

Abstract

Establishing an optimal investment risk structure and maximizing returns while bearing less losses have long been an important goal of investors under certain market risk levels. In 1965, William Sharpe developed the capital asset price model on the cornerstone of Markowitz's mean-variance model, which is an idealized description of looking for portfolio loans according to expected returns and standard deviations. Solved the expected rate of return on a single asset. Its simple logic and intuitiveness make it easier to measure the relationship between risk and expected return. Subsequently, Stephen Ross published an article entitled “The Arbitrage Theory of Capital Asset Pricing” in the Journal of Economic Theory in 1976. He combined the factor model with the no-arbitrage condition to obtain a linear relationship between the expected return and the systematic risk brought by various macroeconomic variables, that is, the arbitrage pricing theory. Both CAPM and APT are the core theories discussed in modern portfolio theory in the dynamically developing capital market, both express the relationship between expected return and risk, and focus on how to reasonably price risk. At the same time, both models have certain drawbacks. This article will gradually analyze the CAPM model and APT, compare the differences between the two, and summarize their advantages and limitations.

Copyright

© 2023 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Zhi Li
PY  - 2022
DA  - 2022/12/27
TI  - Analysis and Comparison of Capital Asset Pricing Model and Arbitrage Pricing Theory Model
BT  - Proceedings of the 2022 4th International Conference on Economic Management and Cultural Industry (ICEMCI 2022)
PB  - Atlantis Press
SP  - 1899
EP  - 1906
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-098-5_213
DO  - 10.2991/978-94-6463-098-5_213
ID  - Li2022
ER  -