The Capital Asset Pricing Theory and Its Misconceptions

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Authors: Paulo Sérgio Tenani
Cited by: 0

Abstract

The CAPM is the fundamental model for pricing financial securities. Nevertheless, the way it is proved in Finance textbooks can be fairly confusing, and more complicated than necessary; with an excessive use of figures at the expense of equations. In addition, depending on the Finance textbook, the set of assumptions that are supposedly needed to prove the CAPM may actually differ. This paper tries to provide an intuitive and straightforward proof of the CAPM and it also illustrates at which instances of the proof the traditional assumptions are actually needed. The main conclusion is that a much simpler version of the CAPM would possibly be as formidable and ingenious as the traditional one and yet, with a much more intuitive proof and fewer unrealistic assumptions.

Fields of Study & Subjects

Banking stability regulation efficiency Economic Theory and Policy Economic theories and models

Publication details

Journal / source
Americanae (AECID Library)
Publication date
20 August 2026
Language
EN