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Capital Asset Pricing Model (CAPM) and Beta

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In the Capital Asset Pricing Model (CAPM) why do we use beta ß, rather than standard deviation of returns, as our measure of risk? Why is it that the formula for beta fits in with the meaning of beta as non-diversitifiable risk?

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This solution discusses the capital asset pricing model and beta.

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In the Capital Asset Pricing Model (CAPM), beta is the preferred measure of risk for a portfolio due to its non-diversifiability, in stark contrast to standard deviation risk which can be ...

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Robert Reinhart, MBA
Education
  • MBA, Merage School of Business, Univ of Cal, Irvine
  • BA, Univ of Cal, Irvine
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