Capital Asset Prices

Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. Journal of Finance, 19(3), 425-442.

Type

Journal article

Intellectual base

Primary research

Year

1964

Volume

19

Issue

3

Pages

425-442

ISSN

1540-6261

DOI

10.1111/j.1540-6261.1964.tb02865.x

DOI registrant

Wiley

Link

https://doi.org/10.1111/j.1540-6261.1964.tb02865.x

Cited from

economics_finance, information_theory, operations_research, philosophy

Cited by

8 citations across 8 artifacts.

Each citation links to the sentence it supports in the citing article.

Primes

• Balance
  • Management and organizational design: Balance in portfolio theory, resource allocation, product mix, and workload distribution; Markowitz's mean-variance optimization (1952) codified portfolio balance as the allocation problem of balancing expected return against risk.

    This sourceDerives the Capital Asset Pricing Model (CAPM), relating an asset's expected return to its systematic risk (beta) in market equilibrium. Cited inline in the Applied example ('Modern extensions — Sharpe ratio 1964 …')

• Discounting (Present Value)
  • Sharpe (1964)

    This sourceDerives the Capital Asset Pricing Model (CAPM); links expected return to systematic risk (beta); supports the claim that Sharpe developed frameworks for calculating risk-adjusted discount rates.

    Supported in partVerified against the work's full text

    Sharpe derives an equilibrium link between an asset's systematic risk and its expected return (the CAPM), but never frames it as a discount rate for present-value work.

    “Prices will adjust so that assets which are more responsive to changes in R g will have higher expected returns than those which are less responsive.”

    Read by an automated reader; not a human review. How support was checked

• Multiobjective Optimization
  • These two objectives are in tension (higher expected return is generally associated with higher variance), and the Pareto frontier — which Markowitz named the efficient frontier — is the set of portfolios for which no other portfolio offers both higher expected return and lower variance, a frontier that Sharpe (1964) subsequently extended into the Capital Asset Pricing Model.

    This sourceDerives Capital Asset Pricing Model (CAPM); establishes linear relationship between expected return and systematic risk (beta); foundational for equilibrium asset-pricing theory.

    Supported in partVerified against the work's full text

    Sharpe defines efficient plans by dominance in expected return and risk, notes more return requires more risk, and extends Markowitz's model to equilibrium prices.

    “A plan is said to be efficient if (and only if) there is no alternative with either (1) the same E R and a lower σ R , (2) the same σ R and a higher E R or (3) a higher E R and a lower σ R .”

    Read by an automated reader; not a human review. How support was checked

• Risk
  • The Sharpe (1964) capital asset pricing model rests on treating an asset's contribution to portfolio risk as the priced quantity, distinguishing diversifiable from systematic exposure.

    This sourceDerives Capital Asset Pricing Model (CAPM); establishes linear relationship between expected return and systematic risk (beta); foundational for equilibrium asset-pricing theory.

    SupportedVerified against the work's full text

    Sharpe argues that “some of the risk inherent in an asset can be avoided so that its total risk is obviously not the relevant influence on its price”, leaving a particular risk component as the one that matters, tied to the asset's correlation with a combination of assets. He speaks of “the price of risk, the additional expected return per unit of risk borne”. That separation of avoidable from priced exposure is what the sentence attributes to the model. The work does not use the name CAPM or the label beta, nor state the model's modern formal equation; those are later terminology.

    “Obviously the part of an asset's risk which is due to its correlation with the return on a combination cannot be diversified away when the asset is added to the combination.”

    Read by an automated reader; not a human review. How support was checked

• Risk–Return Tradeoff
  • Portfolio Selection: Efficient Diversification of Investments, 1959 — Nobel Prize 1990), the Capital Asset Pricing Model (William Sharpe,

    This sourceDerives Capital Asset Pricing Model (CAPM); establishes linear relationship between expected return and systematic risk (beta); foundational for equilibrium asset-pricing theory.

    Supported in partVerified against the work's full text

    Sharpe places his paper in the lineage the sentence gives. He records that “a number of economists have developed normative models dealing with asset choice under conditions of risk”, citing Markowitz's Portfolio Selection, whose major elements appeared in 1952, and Tobin's 1958 “Liquidity Preference as Behavior Towards Risk”, and then notes that none has yet extended the analysis to a market equilibrium theory of asset prices under risk, which this paper undertakes. The work does not use the phrase risk-return tradeoff, and what it conveys about the two earlier papers is Sharpe's own characterisation of them.

    “none has yet attempted to extend it to construct a market equilibrium theory of asset prices under conditions of risk.”

    Read by an automated reader; not a human review. How support was checked

Mechanisms

• Covariance or Factor Model
  • The honest reading is the split between systematic and idiosyncratic variance.

    This sourceSeparates an asset’s total risk into systematic variation linked to the market portfolio and an uncorrelated unsystematic component.

• Hidden Shared-Substrate Audit
  • Its strength is that it catches the couplings most invisible to both observation and ablation: a shared floor produces no local pathway to trace and survives naive path-cutting, yet it is often the highest-consequence dependency — a single substrate that silently correlates risk no diversification removes.

    This sourceShows that common market-linked risk remains after diversification removes asset-specific risk.

• Monte Carlo Pool Simulation
  • Only idiosyncratic risk diversifies away with more members; systematic risk shared across the pool does not, and the simulation is where that distinction becomes a number.

    This sourceDistinguishes diversifiable individual risk from systematic market-related risk that remains after diversification.

Verification

Does it exist? Confirmed. This work's DOI resolves to a registered record, which fixes its identity. That is all it fixes.

Does it back the claim? Read against the text for 4 of 8 citations: 1 supported, 3 supported in part. Each verdict is shown under its citation below, with what in the work backs the sentence.

Support is checked per citation rather than per work — the same source can be cited soundly in one article and wrongly in another. Per-citation recording began recently, so a citation with no recorded check is a gap in the record rather than evidence it went unchecked.

See how references were verified.

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