The Capital Asset Pricing__ Model英文资料.pdf

The Capital Asset Pricing Model:
Theory and Evidence
Eugene F. Fama & h R. French
content
 The Logic of CAPM
 CAPM Fails in Empirical Tests
 ICAPM
 Three-Factor Model
 In theory:
CAPM offers powerful and intuitively pleasing predictions about how
to measure risk and the relation between expected return and risk.
 In empirical:
CAPM is poor—poor enough to invalidate the way it is used in
applications.
 WHY?
simplifying assumptions?
difficulties in implementing valid tests of the model?
or some other reasons.
The logic of the CAPM
 In Markowitz’s model(1959):
Investors choose “mean-variance-efficient” portfolios, which
can be get in two ways:
1) minimize the variance of portfolio return, given expected
return.
2) maximize expected return, given variance.
 Sharpe(1964) and Lintner(1965) add two key assumptions:
• complete agreement
• borrowing and lending at a risk-free rate.
The logic of the CAPM
 We can get a sequences of {xie}—the weight of security i in
portfolio e—minimizing the portfolio's variance under a given
expect return.
 Then we can draw a curve to express the result.
The logic of the CAPM
The logic of the CAPM
 The curve abc, which is called the minimum variance frontier,
binations of expected return and risk for
portfolios of risky assets that minimize return variance at
different levels of expected return.
 The tradeoff between risk and expected return for minimum
variance portfolios is apparent.
The logic of the CAPM
 Adding risk-free borrowing and lending turns the efficient set into
a straight line.
Rpf= xR +−(1 x) R T
ER( pf) = xER( ) +−(1 xER) ( T)
σσ(RpT) =(1 − xR) ( )
 When 0<x<1:Rf can only be lent .
 When x<0:Rf can be borrowed.
The logic of the CAPM
 In short, the CAPM assumptions imply that the market
portfolio M must be on the minimum variance frontier if the
asset market is to clear.
 if there are N risky assets