Interpretations of the CAPM, Diversification, and Beta: Clarifications

Kavous Ardalan (School of Management, Marist College, Poughkeepsie, New York 12601–1387)


ISSN: 0828-8666

Publication date: 1 January 2000


It is now common for finance textbooks to discuss the concepts of the CAPM, diversification benefit, and systematic risk, as measured by beta. The purpose of this paper is to clarify aspects of these concepts and make the textbooks readers aware of them. In particular, this paper seeks to: (1) clarify the notion that “diversification reduces risk,” (2) provide geometric expositions and algebraic expressions of portfolio benefits in the context of both total risk and market risk, and (3) improve the interpretation of beta.


Ardalan, K. (2000), "Interpretations of the CAPM, Diversification, and Beta: Clarifications", Humanomics, Vol. 16 No. 1, pp. 35-50.

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Copyright © 2000, MCB UP Limited

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