Interpretations of the CAPM, Diversification, and Beta: Clarifications
Abstract
It is now common for finance textbooks to discuss the concepts of the CAPM, diversification benefit, and systematic risk, as measured by beta. The purpose of this paper is to clarify aspects of these concepts and make the textbooks readers aware of them. In particular, this paper seeks to: (1) clarify the notion that “diversification reduces risk,” (2) provide geometric expositions and algebraic expressions of portfolio benefits in the context of both total risk and market risk, and (3) improve the interpretation of beta.
Citation
Ardalan, K. (2000), "Interpretations of the CAPM, Diversification, and Beta: Clarifications", Humanomics, Vol. 16 No. 1, pp. 35-50. https://doi.org/10.1108/eb018848
Publisher
:MCB UP Ltd
Copyright © 2000, MCB UP Limited