The Capital Asset Pricing Model, Market Model, and Other Factor-Based Equity Models
Free CFA Level I lesson in Equity Investments. 14 min read, ~2,099 words.
CAPM:. Equilibrium, one factor (market risk), assumes diversified investors. Market model:. Empirical regression used to estimate beta, not a pricing theory. APT: multi-factor, no-arbitrage. Factors are not specified by the theory, they are chosen empirically (macro or fundamental). Fama-French-Carhart: market, size (SMB), value (HML), momentum (WML). Four factors explain cross-section...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- equity instrument features
- equity jurisdictions classes and voting
- equity issuance and trading
- sources of equity returns
- introduction to equity valuation
- DCF and growth models
- relative value valuation
- financial statement forecasting
- industry and competitive analysis
- company analysis
- equity analyst research reports
- CAPM market model and factor models
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