CAPM
- Thread starter nichas
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Hi Sachin,
Maybe the first place to go is the assigned reading in the fifth discipline: Amenc, Noel and Veronique Le Sourd. Portfolio Theory and Performance Analysis. Chapter 4 – The Capital Asset Pricing Model and Its Application to Performance Measurement
Truly, this whole book is really good. The 2008 FRM (unfortunately, inexplicably!) dropped Chapter 6 of the same book, a really key chapter on "Multi-factor models." IMO, the way to really learn CAPM is as a special case of the multi-factor models, so chapter 4 + chapter 6 in Amenc is a recommendation.
Also, several of the assigned texts do, at least, address CAPM just not necessarily in the assigned section: CAPM is mentioned in Jorion 3rd Ed VaR, it has a (brief) section in Wilmott's Into to Quant, and Stulz book on risk mgmt & derivatives (but i don't find stulz intuitive...)
I recently read Peter Bernstein's Capital Ideas evolving: if you want an intuitive, elegant "defense" of CAPM, i can think of none better. He says the "whole story" of CAPM is: "the market as a whole is the only influence on the return of individual assets, and risk is conceived and measured only in terms of the relation between the volatility of the indivdual security and the volatility of the market as a whole." Some, noticing this cannot be (empircally) true, i think dismiss CAPM but Treynor (e.g.) has not been troubled by that, noting that other systemic factors can sit on top of the market factor. For myself, i only had an "aha" about CAPM after i saw in as a special class of the multi-factor (APT) models...
Hope that helps, if you find something more intuitive, i'd love to hear about it! Thanks,
Maybe the first place to go is the assigned reading in the fifth discipline: Amenc, Noel and Veronique Le Sourd. Portfolio Theory and Performance Analysis. Chapter 4 – The Capital Asset Pricing Model and Its Application to Performance Measurement
Truly, this whole book is really good. The 2008 FRM (unfortunately, inexplicably!) dropped Chapter 6 of the same book, a really key chapter on "Multi-factor models." IMO, the way to really learn CAPM is as a special case of the multi-factor models, so chapter 4 + chapter 6 in Amenc is a recommendation.
Also, several of the assigned texts do, at least, address CAPM just not necessarily in the assigned section: CAPM is mentioned in Jorion 3rd Ed VaR, it has a (brief) section in Wilmott's Into to Quant, and Stulz book on risk mgmt & derivatives (but i don't find stulz intuitive...)
I recently read Peter Bernstein's Capital Ideas evolving: if you want an intuitive, elegant "defense" of CAPM, i can think of none better. He says the "whole story" of CAPM is: "the market as a whole is the only influence on the return of individual assets, and risk is conceived and measured only in terms of the relation between the volatility of the indivdual security and the volatility of the market as a whole." Some, noticing this cannot be (empircally) true, i think dismiss CAPM but Treynor (e.g.) has not been troubled by that, noting that other systemic factors can sit on top of the market factor. For myself, i only had an "aha" about CAPM after i saw in as a special class of the multi-factor (APT) models...
Hope that helps, if you find something more intuitive, i'd love to hear about it! Thanks,
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