Capital Asset Pricing Model and Empirical Research

Capital asset pricing model is an economic model having been playing an energetic role in financial theories for decades in the west with the main purpose to address asset pricing. This paper first introduces fundamental theories of capital asset pricing model and then makes empirical analysis in view of support and challenges with the model. Supporting approaches include Sharp, BJS and FM test and challenging methods cover Banz, Fama and French test. Finally, BJS inspection is used to analyze securities market in China. Capital Assets Pricing Model (CAPM for short) is proposed by American economists Sharp and Turner after developing investment combination theory of Markowitz. Due to the uncertainties of future benefits of capital assets such as stock and securities, CAPM shall be operated on certain assumptions. Such assumptions include (a) perfect market, (b) market equilibrium, (c) rational investors and (d) homogeneous investors.