The Capital Asset Pricing Model, Market Model, and Other Factor-Based Equity Models

Free CFA Level I lesson in Equity Investments. 14 min read, ~2,158 words.

CAPM:. Equilibrium, one factor (market risk), assumes diversified investors, prices only systematic risk. Market model:. Empirical regression used to estimate beta and decompose returns, not a pricing theory, so it carries a free alpha. APT: multi-factor, no-arbitrage. The theory does not specify the factors, the analyst chooses them empirically (macro...

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What this lesson covers

Content
Example 1
Example 2
Common Mistakes
Check Your Understanding
Exam Shortcuts

Learning objectives

CAPM market model and factor models

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