A Model of Capital Asset Risk

R. Richardson Pettit and Randolph Westerfield

Journal of Financial and Quantitative Analysis, 1972, vol. 7, issue 2, 1649-1668

Abstract: The “market model” of capital asset pricing theory posits that the oneperiod return on an asset is a linear function of the one-period return on a “market factor” plus the effect of factors that are unique to that asset. The coefficients of the model, estimated using realized returns, can be used for predicting asset returns conditional on market returns, and the slope or “beta” coefficient provides an estimate of the asset's risk. Although the market model has been applied to a wide variety of capital market studies and is now being applied by practitioners for assessing asset risk, very little research has been undertaken to discover the determinants of the beta coefficient.

Date: 1972
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