An Arbitrary Benchmark CAPM: One Additional Frontier Portfolio is Sufficient

Steinar Ekern

No 2008/24, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

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 (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2008-10-17
New Economics Papers: this item is included in nep-ore
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