Tracking The Real Market Using A Trading Value System To Implement CAPM
- Topics:
- Commercial Lending
- Tags:
- Finance,
- Financial Accounting,
- Investor
- Source:
- Journal of Indexes
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Overview: Since its debut in the 1960s, William F. Sharpe’s CAPM (Capital Asset Pricing Model) has preoccupied the minds of many sophisticated investors. Based on CAPM’s doctrines, passive investment strategy has become a significant part of investors ’game plan, and indexed portfolios have grown in assets from zero in 1970 to over $2 trillion today. This article talks about the proposed new tool for investors to implement their passive investment strategy. This new tool is called the “Trading Value”system. Trading value is defines as: Trading Value=Price X Shares. This process loyally tracks each transaction for every stock. It is a democratic process; every dollar counts and every investor votes with their money. We feel that it represents the “collective wisdom”of the market, instead of some index committee’s wisdom, or a stale market capitalization that sometimes has little to do with current investor judgment. We think this is also the ultimate testimony of CAPM’s market efficiency. There is no index committee or any investment committee involved in this process; every investor, if you will, is a committee member. It simple, fully transparent process and it is based on objective selection criteria which provide consistency and eliminate the possibility of self-dealing by the operator of the system. We all witnessed how conflicts of interest can occur in the financial market, to the detriment of investors. Objectivity is the best way to eliminate this inherent problem. We believe that now more than ever, investors demand objectivity in financial systems.
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Format: HTML | Date: Jan 2003 | Pages: 5
