Submitted by madnotes on May 14, 2008

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The Market Model Of Asset Return

The Market Model of Asset Return



Introduction

The ‘Market Model’ of asset returns states that Return (including both capital gains and dividends) to shareholders of an asset is a linear function of the return on the market portfolio of assets at time t. The above relationship is summarized as the following equation:
Rit = α + βRmt + ut
Where:
• Rit = return (including capital gains and dividends) to shareholders of the j’th asset at time t.
• Rmt= equivalent return on the ‘market portfolio’ of assets at time t.
• α = a constant

In...

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