Limitations of the Capital Asset Pricing Model and How Multi-Factors Approach Overcomes the Limitations (Essay Sample)

Limitations of the Capital Asset Pricing Model and how Multi-factors Approach overcomes the Limitations
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Capital Asset Pricing Model (CAPM) and Multifactor Models
Capital Asset Pricing Model (CAPM) can be described as a financial model that finance analysts use to show how risk and expected returns are related. The concept is used when pricing risky securities (Dempsey, 2013:8). In simple terms, CAPM is a reorganization that investors should be compensated for the funds they invest in two ways. First, entrepreneurs should be remunerated for the time value of money because the investors have in invested their mo...