This paper uses counterexamples and simple formalization to show that the standardCAPM-based Net Present Value may not be used for investment valuations. The reason is that thestandard CAPM-based capital budgeting criterion implies a notion of value which does not complywith the principle of additivity. Framing effects arise in decisions so that different descriptions ofthe same problem lead to different choices. As a result, the CAPM-based NPV as a tool for valuingprojects and making investment decisions is theoretically unsound, even if the CAPM assumptionsare met.
Magni, Carlo Alberto. "Theoretical flaws in the use of CAPM for investment decisions" Working paper, SSRN (Social Science Research Network), 2005.
Theoretical flaws in the use of CAPM for investment decisions
MAGNI, Carlo Alberto
2005
Abstract
This paper uses counterexamples and simple formalization to show that the standardCAPM-based Net Present Value may not be used for investment valuations. The reason is that thestandard CAPM-based capital budgeting criterion implies a notion of value which does not complywith the principle of additivity. Framing effects arise in decisions so that different descriptions ofthe same problem lead to different choices. As a result, the CAPM-based NPV as a tool for valuingprojects and making investment decisions is theoretically unsound, even if the CAPM assumptionsare met.
Pubblicazioni consigliate
I metadati presenti in IRIS UNIMORE sono rilasciati con licenza Creative Commons CC0 1.0 Universal, mentre i file delle pubblicazioni sono rilasciati con licenza Attribuzione 4.0 Internazionale (CC BY 4.0), salvo diversa indicazione.
In caso di violazione di copyright, contattare Supporto Iris
