Critically analyse the relative merits of the Capital Asset Pricing Assignment

Critically analyse the relation merits of the Capital Asset Pricing Model and empirical approaches to Asset pricing (such as FAMA and French pretence) - designation ExampleThe staple fiber essence of the model is that it determines the amount of requite that an investor is going to earn for putting their funds at fortune.It would be helpful to have a brief and basic idea about the invention of CAPM with the intention that the understanding of relative merits of it becomes easy. According to the model and ultimate derivation, it can be said that the return which an investor expects to earn by investing on a security or a portfolio is the rate on a endangerment-free security and a jeopardize premium. The formula for this finding is written likeThe basic concept behind the above model is that the investors are required to be compensated in both ways risk and time value of money. The compensation for time value of money is represented by the risk-free rate which an investor ea rns by putting his money on investment over a achievement of time. The other part of the formula on the right hand side is a factor of risk and it determines the compensation the investors should get for taking an additional amount of risk. This amount is calculated by a risk measure (beta). There are certain implications of the modelAccording to Michailidis (2006), an examination of the emerging Greek Securities trade was done based on the CAPM by considering weekly stock returns of 100 companies that were listed on the Athens downslope Exchange for the period 1998-2002. The findings of the test did not support the basic statement that higher risk (beta) promoter higher levels of return. However the model explains excess return and ultimately supports the linear structure of the CAPM equation (Michailidis & Et. Al., 2006).The model considers reality in explaining risk factor where it assumes only systematic risk associated with the investment options. The unsystematic risk can be removed since there are diversified options for investors and thus can be eliminated.CAPM derives a theoretical relationship between return and