Sharpe, Markowitz and Merton Miller jointly received the 1990 Nobel Memorial Prize in Economics for this contribution to the field of financial economics.
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This possibility is studied in the field of behavioral finance, which uses psychological assumptions to provide alternatives to the CAPM such as the overconfidence-based asset pricing model of Kent Daniel, David Hirshleifer, and Avanidhar Subrahmanyam (2001).
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Some data to this effect was presented as early as a 1969 conference in Buffalo, New York in a paper by Fischer Black, Michael Jensen, and Myron Scholes.
In recent years, Fama has become controversial again, for a series of papers, co-written with Kenneth French, that cast doubt on the validity of the Capital Asset Pricing Model (CAPM), which posits that a stock's beta alone should explain its average return.
Alternative models for the normal returns include the CAPM model, or more simplistic approaches such as mean returns (see MacKinlay 1997 for an overview).
model | capital | Model (person) | Australian Capital Territory | America's Next Top Model | Ford Model T | venture capital | New Model Army | Capital (political) | model (person) | capital city | Bain Capital | Model United Nations | Capital One | Capital Centre | IPTC Information Interchange Model | European Capital of Culture | Capital punishment | Capital city | TPG Capital | Lockheed Model 10 Electra | Duntroon, Australian Capital Territory | Brookfield Asset Management | Standard Model | Model (profession) | Kingston, Australian Capital Territory | Financial capital | Elite Model Management | Cerberus Capital Management | Capital FM |
The cost of capital for the firm's equity is usually estimated using the capital asset pricing model.
The capital asset pricing model, first developed by Treynor and Sharpe, suggests that investors should fully diversify and their portfolios should be a mixture of the "market" and a risk-free investment.