FINANCIAL ASSETS PRICING MODEL

 

FINANCIAL ASSETS PRICING MODEL (FVFM)

   

  The estimations of the Financial Assets Pricing Model can be summarized as follows:

  1) There are no transaction costs,

  2) All possible investments are open to investors (no buy-sell restrictions),

  3) Investments are infinitely divisible,

  4) The effect of the portfolio prices of any investor in the market is not large enough,

  5) You can access the information in the market easily and without any cost.

  There are two important facts in the explanation of the model:

  first;  Have a risk-free financial asset with a 100% expected return; and

  Second, there is the possibility of borrowing from the risk-free returns of the memories.

  In CAPM, the risk of any stock investor is measured by the risk that the stock in question can add to the investor's total portfolio.

  A stock that does not move with the market portfolio will not add much additional risk to the market portfolio's risk.  This means that most of the total risk of this type of stock can be eliminated by diversification due to firm or industry specific (unsystematic risk).