The Capital Asset Pricing Model: An Evaluation of its Potential as a Strategic Planning Tool

Abstract

In this paper we provide a summary of the capital asset pricing model (CAPM) and point out how it might possibly be used as a tool for strategic planning by corporations that own a portfolio of businesses. We also point out some of the assumptions underlying the CAPM which must be satisfied if it is to be used for strategic planning. Next we include a critical appraisal of the CAPM as a strategic planning tool. Finally, we state the case for linking competitive strategy models, CAPM models, and business simulation models.