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Using the Capital Asset Pricing Model and the Market Model to Predict Security Returns

Published online by Cambridge University Press:  19 October 2009

R. Richardson Pettit  and
Randolph Westerfield
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Extract

This paper examines the validity of two widely used methods for forming conditional predicted portfolio returns. The first method relies on a one-period, mean-variance theory of equilibrium expected return, sometimes referred to as the “capital asset pricing model” (CAPM). The second method is based upon a proposal by Markowitz [14] and is called the [market model] (MM).

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 9 , Issue 4 , September 1974 , pp. 579 - 605
Copyright
Copyright © School of Business Administration, University of Washington 1974

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