![]() investor expectations are homogeneous, therefore each of them has the same perception concerning the expected return, the variances and the co-variances: the efficient frontier is unique and the same for all investors the market is perfect that is, the information is freely and immediately available for all investors Moreover, it is necessary to add further assumptions to these hypotheses that are essential in establishing the concave frontier: the market is atomistic, there are no barriers with regard to investment possibilities, and all investors have the same opportunities even if the available amount of wealth differs between them. the assets are perfectly divisible and there are no transaction costs or taxes the expected return and the standard deviation are the only parameters that orientate the portfolio choice ![]() the investment period is unique and forecasts are formulated at the beginning of the period the investors want to maximise their final wealth and they are risk averse The model hypotheses, already seen in the Markowitz model, concern the behaviour of the individual and that of the market: ![]() The CAPM attempts to answer the questions that come from the Markowitz's mean-variance approach, where investors make an optimal portfolio in accordance with the rule of a greater return for an equal risk (variance), or a lower risk with an equal return. The CAPM is based on a theoretical scheme to concretely assess the risk connected to a certain level of return according to the individual utility function. The Capital Asset Pricing Model (CAPM) is a market equilibrium model used to define the existing trade off between risk and expected return in portfolio choices.The CAPM attempts to answer the questions that come from the Markowitz's mean-variance approach, and the paper describes the model and its measurement.
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