Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)
An Arbitrary Benchmark CAPM: One Additional Frontier Portfolio is Sufficient
Abstract: The benchmark CAPM linearly relates the expected returns
on an arbitrary asset, an arbitrary benchmark portfolio, and an arbitrary
MV frontier portfolio. The benchmark is not required to be on the frontier
and may be non-perfectly correlated with the frontier portfolio. The
benchmark CAPM extends and generalizes previous CAPM formulations,
including the zero beta, two correlated frontier portfolios, riskless
augmented frontier, and inefficient portfolio versions. The covariance
between the off-frontier benchmark and the frontier portfolio affects the
systematic risk of any asset. Each asset has a composite beta, derived from
the simple betas of both the asset and the benchmark.
Keywords: Benchmark; CAPM; non-frontier portfolio; zero beta portfolio; composite beta; (follow links to similar papers)
JEL-Codes: G10; G11; G12; (follow links to similar papers)
18 pages, October 17, 2008
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