Capital asset pricing model

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM states that the expected return of an asset equals the risk-free rate plus a risk premium based on the asset's beta (sensitivity to market movements).

Developed independently by William Sharpe, John Lintner, and Jan Mossin in the 1960s, building on Markowitz's portfolio theory. The name combines 'capital' from Latin 'capitalis' (relating to the head/chief) and 'asset pricing,' reflecting its focus on how risky assets should be valued.