CAPM assumptions

[viktorv]

CAPM has its own set of assumptions, but since it is a regression model, it should also have the same set of assumptions as would any other regression model, someone please confirm!
thank you

 

[JoeyDVivre]

CAPM isn’t a regression model; it’s a “state of the world” model that you could (maybe) make real-world by using regression. If you did that, as you say, your model would have assumptions and the usual limitations of regression modelling.

 

[Dsylexic]

is it correct to say that regression models provide an ‘estimate’ while the CAPM provides an ‘equation’ ?.
the capm can be re-arranged to measure the investor’s performance :
Ra-Rf = alpha +beta(Rm-Rf) and this can be regressed.
pls comment.

 

[maratikus]

one of the CAPM assumptions is that markets are efficient and, therefore, alpha = 0 in the CAPM equation.
Here is a nice summary of CAPM: http://en.wikipedia.org/wiki/Capital_asset_pricing_model

 

[viktorv]

JoeyDVivre Wrote:
——————————————————-
> CAPM isn’t a regression model; it’s a “state of
> the world” model that you could (maybe) make
> real-world by using regression. If you did that,
> as you say, your model would have assumptions and
> the usual limitations of regression modelling.
JDV, is it a regression model or a “state of the world model” as it appears in CFAI text?
I guess its the former b/c it doesn’t mention any LR assumptions…
ty !