Asset Pricing Models
Asset Pricing Models is a foundations concept in the Markets pillar.
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View full graph →Asset Pricing Models is a foundations concept in the Markets pillar.
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Explain Asset Pricing Models as if teaching a colleague who is new to foundations. Cover: what it is, how it works, and why it matters.
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Create a diagram that demonstrates Asset Pricing Models in a real-world foundations scenario. Walk through your design decisions.
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A diagram for Asset Pricing Models should include: 1. The core components of asset pricing 2. How they interact 3. Expected outcomes or outputs
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Fama & French (2015) - A Five-Factor Asset Pricing Model
Fama and French extend their three-factor model by adding profitability (RMW) and investment (CMA) factors, providing a
Sharpe (1964) - Capital Asset Prices: A Theory of Market Equilibrium (CAPM)
William Sharpe's CAPM provides the theory of how assets are priced in equilibrium, showing that expected return is linea
Covariances versus Characteristics in General Equilibrium
We question a deep-ingrained doctrine in asset pricing: If an empirical characteristic-return relation is consistent wit