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Forecasting the Price of Risk Within the Context of the Capital Asset Pricing Model with Market Index Implied Standard Deviations

Edward M. Saunders Jr.

Managerial Finance

ISSN: 0307-4358

Article publication date: 1 February 1987

192

Abstract

The current price of risk is obviously of major concern to financial managers. While the existing financial literature provides a wealth of insight into the issue, little is offered with respect to precise quantification of the return/risk trade‐ off. Perhaps the central difficulty in quantifying current risk and return stems from the fact that virtually all valuation models for unique assets are cast, by necessity, in an expectational framework. Even though expected risk and return are embedded in current price, it is difficult to extract these expectations when they, like prices, are unstable. In this event, history becomes a less than perfect surrogate for the expected future relationship.

Citation

Saunders, E.M. (1987), "Forecasting the Price of Risk Within the Context of the Capital Asset Pricing Model with Market Index Implied Standard Deviations", Managerial Finance, Vol. 13 No. 2, pp. 16-19. https://doi.org/10.1108/eb013582

Publisher

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MCB UP Ltd

Copyright © 1987, MCB UP Limited

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