The capital asset pricing model (CAPM) represents an idealized view of how the market prices securities and determines expected returns. If provides a measure of the risk premium and a method for estimating the market's risk/expected return curve.
In the CAPM, investors hold diversified portfolios to minimize risk. Because they hold portfolios consisting of many securities, events peculiar to specific frims have a negligible impact on their overall return. Only a small fraction of an investor's funds are each security. Furthermore, variations in returns