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| Author: | Bartholdy, J. Peare, P. |
| Title: | Unbiased estimation of expected return using CAPM |
| Journal: | International Review of Financial Analysis
2003 : VOL. 12:1, p. 69-82 |
| Index terms: | CAPITAL ASSETS PRICING MODELS EXPECTATIONS PROFIT |
| Language: | eng |
| Abstract: | Estimation of expected return is required for many financial decisions. For example, an estimate for cost of capital is required for capital budgeting and cost of equity estimates are needed for performance evaluation based on measures such as EVA. Estimates for expected return are often based on the Capital Asset Pricing Model (CAPM), which states that expected excess return is equal to the asset's sensitivity to the world market portfolio (b) times the risk premium on the "world market portfolio". An estimate for expected return is commonly obtained by taking an estimate for b based on some index (as a proxy for the world market portfolio) and an estimate for the market risk premium based on a potentially different index and multiplying them together. |
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