THEORETICAL ASPECTS OF RISK IN CAPM THEORY

Nedelescu Mihai () and Stănescu Maria Cristina ()
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Nedelescu Mihai: Romanian American University
Stănescu Maria Cristina: Romanian American University

Romanian Economic Business Review, 2015, vol. 10, issue 2, 60-70

Abstract: Risk can be described as a combination between the probability of risk and the consequences in terms of loss or gain because of risk. Risk is an inherent part of all economic activities. The definition of risk (Passenheim, 2010) can be rather difficult as expectations are focused into the future and therefore there is no room for uncertainties. Additionally, these uncertainties could end in an outcome that is either more positive or more negative than expected. CAPM is used to illustrate a particular connection between the degree of uncertainty in earnings flow for a monetary investment as well as level of return, and as a result, it describes how shares are usually valued and how discount rates are established

Keywords: risk; CAPM; Security Market Line; portfolio; market risk; beta index. (search for similar items in EconPapers)
Date: 2015
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