International Capital Asset Pricing Model (CAPM)

AAA

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.

INVESTOPEDIA EXPLAINS '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. Cost Of Capital

    The required return necessary to make a capital budgeting project, ...
  2. Purchasing Power Parity - PPP

    An economic theory that estimates the amount of adjustment needed ...
  3. Consumption Capital Asset Pricing ...

    A financial model that extends the concepts of the capital asset ...
  4. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected ...
  5. Equity Risk Premium

    The excess return that an individual stock or the overall stock ...
  6. Fama And French Three Factor Model

    A factor model that expands on the capital asset pricing model ...
Related Articles
  1. Understanding The Sharpe Ratio
    Bonds & Fixed Income

    Understanding The Sharpe Ratio

  2. Beta: Know The Risk
    Investing Basics

    Beta: Know The Risk

  3. Taking Shots At CAPM
    Fundamental Analysis

    Taking Shots At CAPM

  4. How Risk Free Is The Risk-Free Rate ...
    Options & Futures

    How Risk Free Is The Risk-Free Rate ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center