This study shows that (a) project valuation via CAPM contradictsvaluation via arbitrage pricing, (b) CAPM-minded decision makers may fail to profit from arbitrage opportunities, (c) standard CAPM-based valuation violates value additivity. As a consequence, the use of CAPM for project valuation and decision making should be reconsidered.
Project valuation and investment decisions: CAPM versus arbitrage / Magni, Carlo Alberto. - In: APPLIED FINANCIAL ECONOMICS LETTERS. - ISSN 1744-6546. - STAMPA. - 3:1(2007), pp. 137-140. [10.1080/17446540500426821]
Project valuation and investment decisions: CAPM versus arbitrage
MAGNI, Carlo Alberto
2007
Abstract
This study shows that (a) project valuation via CAPM contradictsvaluation via arbitrage pricing, (b) CAPM-minded decision makers may fail to profit from arbitrage opportunities, (c) standard CAPM-based valuation violates value additivity. As a consequence, the use of CAPM for project valuation and decision making should be reconsidered.
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