Written by jennifer vanbaren | 13/05/2017

The capital asset pricing model (CAPM) and intertemporal capital asset pricing model (ICAPM) are models used to determine expected asset returns.


The CAPM is used to calculate an asset's expected return however, theories are proving that the CAPM does not always expose all the risks present, whereas the ICAPM may be a more reliable model. If risks are exposed, investors can eliminate surprises caused by risks of which they were not aware.


The CAPM is a model used to calculate an asset's expected return and uses many assumptions. This model takes into consideration the time value of money and the fact that assets co-move with the market. Many people believe the results given by this model do not fully capture an asset's expected return.


The ICAPM takes into consideration many factors the CAPM does not. The ICAPM considers that investors use their investments for more than just minimising variance in returns. The ICAPM takes potential risk factors into consideration.

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