I-CAPM was first introduced in 1973 by Merton. It is an extension of CAPM which recognizes not only the familiar time-independent CAPM beta relationship, but also additional factors that change over time (hence “intertemporal”).
Click here for reuse options! Having previously discussed them, let’s compare them. How does the Arbitrage Pricing Theory (APT) stack up against the Capital Asset Pricing Model (CAPM)?
Click here for reuse options! Arbitrage Pricing Theory (APT) is a multi-factor model in which a series of input variables, such as macroeconomic indicators and market indices, are each assigned their own betas to determine the expected return of a target asset.
Click here for reuse options! Arbitrage Pricing Theory (APT) is a multi-factor model conceived by Stephen Ross in 1976. It is a linear equation in which a series of input variables, such as economic indicators and market indices, are each assigned their own betas to determine the expected return of a target asset. These factor-specific betas (b) fine-tune the sensitivity of the target asset’s rate of return to the particular factor.
Click here for reuse options! In the first three installments, we looked closely at the assumptions that underlie the Capital Asset Pricing Model (CAPM), as part of our overall project of investigating the role of alpha in hedge fund performance. Today we will review the basic CAPM equations.
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