A Review of the Theory and Development of the Capital Asset Pricing Model

Since William Sharpe introduced the Capital Asset Pricing Model (CAPM) in the 1960s, it has profoundly influenced asset pricing, portfolio management, and corporate financial decision-making. This work employs a comprehensive literature review methodology, utilizing comparative and inductive analysis to elucidate the primary research trajectories and developmental patterns of the CAPM. The Capital Asset Pricing Model (CAPM) was formulated on the foundation of Markowitz's portfolio theory and introduced by William Sharpe. It has since had extensions, including the APT model, the three-factor model, and the four-factor model, along with the latest use of machine learning techniques, aligning capital price more closely with actual market conditions. The research conclusion indicates that, firstly, although the CAPM has certain limitations, its theoretical simplicity and logical rigor make it an important asset pricing tool for investors. Secondly, multi-factor models have become a new path for the development of the CAPM, and further increasing factors can enhance the model's explanatory power. Finally, behavioral finance provides a new perspective for understanding the limitations of the CAPM.