Capital Asset Pricing Model |
| A model for calculating expected equity returns. It is based on the premise that returns are the reward for taking on risk, and that risk can be split into two types: stock-specific risk and market risk. Since stock-specific risk can be mitigated by diversification policies, investors should not be compensated for taking this on. Expected returns should only be a function of the share's response to returns on the market as a whole, which is given by the share's beta. |
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