International Capital Asset Pricing Model (CAPM)

DEFINITION of 'International Capital Asset Pricing Model (CAPM)'

A financial model that extends the concept of the capital asset pricing model (CAPM) to international investments. The standard CAPM pricing model is used to help determine the return investors require for a given level of risk. When looking at investments in an international setting, the international version of the CAPM model is used to incorporate foreign exchange risks (typically with the addition of a foreign currency risk premium) when dealing with several currencies.

BREAKING DOWN 'International Capital Asset Pricing Model (CAPM)'

CAPM is a method for calculating anticipated investment risks and returns. The model was developed by economist and Nobel Memorial Prize winner William Sharpe. It says that the return on an investment should equal its cost of capital and that the only way to earn a higher return is by taking on more risk. Investors can use CAPM to evaluate the attractiveness of potential investments. There are several different versions of CAPM, of which international CAPM is just one.

RELATED TERMS
  1. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected ...
  2. Roll's Critique

    An economic idea that suggests that it is impossible to create ...
  3. Fama And French Three Factor Model

    A factor model that expands on the capital asset pricing model ...
  4. Anomaly

    A term describing the incidence when the actual result under ...
  5. William F. Sharpe

    An American economist who won the 1990 Nobel Prize in Economics, ...
  6. Consumption Capital Asset Pricing ...

    A financial model that extends the concepts of the capital asset ...
Related Articles
  1. Fundamental Analysis

    Capital Asset Pricing Model - CAPM

    CAPM is a model that describes the relationship between risk and expected return.
  2. Fundamental Analysis

    Taking Shots At CAPM

    Find out why many investors think the capital asset pricing model is full of holes.
  3. Options & Futures

    Financial Concepts: Capital Asset Pricing Model (CAPM)

    Pronounced as though it were spelled "cap-m", this model was originally developed in 1952 by Harry Markowitz and fine-tuned over a decade later by others, including William Sharpe. The capital ...
  4. Investing

    The Capital Asset Pricing (CAPM) Model: Pros and Cons

    CAPM, while criticized for its unrealistic assumptions, provides a more useful outcome than either the DDM or WACC in many situations.
  5. Fundamental Analysis

    The Capital Asset Pricing Model: An Overview

    CAPM helps you determine what return you deserve for putting your money at risk.
  6. Investing Basics

    Valuation Models: Apple’s Stock Analysis With CAPM

    The capital asset pricing model, or the CAPM, estimates the expected return of an asset based on the systematic risk of the asset’s return.
  7. Investing Basics

    Introduction To International CAPM

    ICAPM is one of several models used to determine the required return on an asset, discover its limitations and how to use it.
  8. Professionals

    Expected And Unexpected Returns

    Find out how to apply this to your portfolio.
  9. Fundamental Analysis

    Is Apple's Stock Over Valued Or Undervalued?

    Despite several drawbacks, the CAPM gives an overview of the level of return that investors should expect for bearing only systematic risk. Applying Apple, we get annual expected return of about ...
  10. Forex Education

    Reduce Your Risk With ICAPM

    Avoid unnecesary risks involved in CAPM calculations by also incorporating ICAPM into the mix.
RELATED FAQS
  1. What is the formula for calculating the capital asset pricing model (CAPM)?

    Learn about the capital asset pricing model, or CAPM, and how this formula is used to determine the expected rate of return ... Read Answer >>
  2. How do I use the CAPM (capital asset pricing model) to determine the cost of equity?

    Learn about the elements of the capital asset pricing model, and discover how to use this formula to calculate a business' ... Read Answer >>
  3. According to the CAPM, the expected return on a stock, that is part of a portfolio, ...

    A. the covariance between the stock and the market. B. the variance of the market. C. the market risk premium. D. ... Read Answer >>
  4. How is the Capital Asset Pricing Model (CAPM) represented in the Security Market ...

    Learn about the capital asset pricing model and the security market line and how the model is used in the calculation and ... Read Answer >>
  5. How do I calculate the cost of equity using Excel?

    Learn how to calculate the cost of equity in Microsoft Excel using the capital asset pricing model, or CAPM, including brief ... Read Answer >>
  6. How does market risk affect the cost of capital?

    Find out how market risk directly affects the total cost of capital, including how to use the capital asset pricing model ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center