Alpha, Beta and the CAPM

Level: Advanced

The Capital Asset Pricing Model lays the theoretical foundation to estimate long-term expected investment returns. It also introduces the two siblings Alpha and Beta. Alpha and beta are key indicators when judging investment performance. Beta measures the sensitivity of an investment to market fluctuations. It tells us how much market risk is "embedded" in an investment. Alpha measures how much return an investment generates above what can be expected based on its market exposure. It is therefore an indicator of a portfolio manager's ability to generate excess returns. We discuss the nuanced relationship between these two metrics and show that they can be used to assess investment performance and investment risk. This e-learning topic is part of our portfolio management flagship class.
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Study Time

3 hours

Interactive Lectures

6 e-lectures

Case Study

1 Statistics Lab

Test & Certificates

1 Certificates

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Portfolio Construction & Management

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