3.2.1.2. Capital Asset Pricing Model
The measure of a security’s systematic risk is commonly referred to as its beta. Beta is a ratio that measures the tendency of a security’s returns to respond to swings in the market. It is determined statistically by examining a security’s historical performance against the performance of the market. Beta is used as an input to a model that estimates the expected return of a security or portfolio of securities. That model is called the capital asset pricing model.
The capital asset pricing model (