Content area
Abstract
The capital asset pricing model (CAPM) may be viewed in 2 ways. First, it is a model of optimization of investments in a theoretical world, in which there are assets with certain returns and assets with risky return. In this sense, the CAPM constitutes the conditions under which the investor's choice among risky assets is independent of his risk-averse preferences for risk and return. It is theorem of separation, but one that has given impetus to hundreds of empirical researchers who viewed the model in another way. Second, the CAPM can be interpreted as a model of pricing risky assets, especially shares. In that sense, it has been confronted with real share prices in many countries, giving rise to many unresolved problems. Some of these problems are discussed. It is concluded that research on past share prices should analyze carefully the capital market before testing ex ante models by ex post data.