Security Market Line
Definition
What is Security Market Line?
A line showing the CAPM relationship between expected returnThe probability-weighted average of possible future returns or an estimate of future return. and beta.
Example in practice
How This Looks in Practice
A securityA tradable financial claim or ownership interest, such as a share, bond, or fund unit. above the line appears to offer more return than its beta implies.
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Related Terms
Capital Asset Pricing Model
A model linking expected return to the risk-free rate, market risk premium, and an asset's beta.
Portfolio TheoryEfficient Frontier
The set of portfolios offering the highest expected return for each level of risk under stated assumptions.
Portfolio TheoryMinimum-Variance Portfolio
The portfolio with the lowest expected variance among the available combinations.
Fraud & ScamsPonzi Scheme
A fraud that pays earlier participants using money from newer participants rather than genuine investment profits.