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ICAPM Vs. CAPM

Updated March 23, 2017

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

Theory

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.

Components

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.

Details

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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About the Author

Jennifer VanBaren started her professional online writing career in 2010. She taught college-level accounting, math and business classes for five years. Her writing highlights include publishing articles about music, business, gardening and home organization. She holds a Bachelor of Science in accounting and finance from St. Joseph's College in Rensselaer, Ind.