One of the most popular and widely accepted financial valuation
models is the Capital Asset Pricing Model (CAPM). This model
intuitively takes relative risk into pricing a financial asset.
Since Sharpe first developed the CAPM in 1964, the return on the
Standard and Poor's 500 (S&P 500) market index has been used as
the proxy for the market return. This proxy has not been updated to
reflect the globalization of finance and the growth of global stock
markets relative to domestic markets. The market proxy is one of
the most important factors, if not the most important factor in
measuring relative risk. This book examines a potentially more
appropriate global index, the Standard and Poor's Global 1200.
Although the S&P 500 captures globalization to a certain extent
due to the global nature of the domestic companies included in the
index, the S&P Global 1200 index is a broader global index and
may now be more suitable given the increased globalization the
world economy has experienced in recent decades.
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