In the Capital Asset Pricing Model (CAPM), what does the Beta coefficient (β) measure?

Explanation

Core Concept: Beta measures systematic risk—the sensitivity of an individual asset’s returns relative to overall market movements. Context/Distractors: Unsystematic risk can be diversified away; standard deviation measures total risk (systematic + unsystematic). Exam Tip/Key Fact: CAPM formula: Expected Return = Rf + β * (Rm – Rf). A beta of 1.0 moves in sync with the market.