Publication Year

2013

Keywords

capital asset pricing model, Redlands student investment fund, efficient market hypothesis, economics, portfolio management, behavioral finance

Disciplines

Behavioral Economics | Business | Economics | Finance | Finance and Financial Management

Abstract

One of the main questions in the field of finance is that of how securities are priced. Many models have been constructed in attempts to address this question, one of the first, and one of the most popularly used, being the Capital Asset Pricing Model (the CAPM). However, though it is widely used, the model has had its fair share of criticism coming from studies that have produced evidence that the model may not be empirically valid. This is perhaps due to the fact that the CAPM is a model that adheres to the assumptions of the field of traditional finance, and more specifically, can be closely tied to the assumptions of the Efficient Market Hypothesis (EMH). Thus, it is possible that the reason there is so much evidence against the CAPM's validity is that EMH does not hold. That is, perhaps markets are actually not efficient.

The scope of this paper investigates whether or not the CAPM applies to a particular portfolio: the portfolio managed by the Redlands Student Investment Fund (RSIF).

Department 1 Awarding Honors Status

Economics

Creative Commons License

Creative Commons Attribution-Noncommercial 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial 4.0 License

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