Capital Asset Pricing Model: A Brief Review on Advantages, Disadvantages and Alternatives

Abstract

CAPM, or capital asset pricing model, is an important tool for determining the expected returns of individual securities or portfolios and for systematic analysis. It is a strong support for the price theory of modern financial markets and is of great importance to the financial markets of various countries. This paper first introduces CAPM briefly, and then analyzes the advantages and disadvantages of the model one by one and analyzes its effect on the financial market with a practical case study. A number of studies have shown that because its hypothesis does not conform to the actual market, the alternative model of CAPM is introduced, and it is found that whether these models used in finance are applic-ble or not has a great relationship with the data, so the CAPM model and its alternative models are worth further study in pricing.