The capital asset pricing model (CAPM) approximates return as a linear function of beta.
The "capital asset pricing model" identified one factor, beta, or a stock's volatility relative to the index, as pivotal to the stock's returns.
Cochrane is the author of a bible of finance called Asset Pricing but in recent times has been piercing the pieties of macroeconomics.
As for risky markets, there is some uncertainty over a longer term, when most asset pricing models use the US rates as the risk free rates.
Even though it spits out percentages to several decimal points, the capital-asset pricing model, as the conceptual framework for calculating the rates is called, is controversial in itself.
This mathematical approach to investing led to the famed Capital Asset Pricing Model by Sharpe, Lintner, and Black, the Option Pricing Model by Black and Scholes, and other important theories.
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During the height of the crisis, it may have accelerated the spread of toxic asset pricing, leading to a faster run on Bear Stearns and Lehman (and other banks too).
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And then it hit me: the asset allocators, those exact folks who seem to be turning their backs on VC today, are the ones who bow at the altar of CAPM, the Capital Asset Pricing Model.
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The Three Factor Model has replaced CAP-M as the asset-pricing model of choice.
The FOMC debate, if any, will focus on potential losses that may be suffered by the Fed from asset and debt pricing (falling bond prices and rising interest rates).
Other than investing in a volatile stock market, housing is the only asset to hold and that can lead to pricing bubbles.
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