Capital asset pricing model and General Data Protection Regulation: Difference between pages

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(CAPM).  
''European Union - data protection''.


The capital asset pricing model links the expected rates of return on traded assets with their relative levels of market risk (beta).  
(GDPR).


The model’s uses include estimating a firm’s market cost of equity from its beta and the prevailing theoretical market risk-free rate of return.
The General Data Protection Regulation 2016/679 of the EU relating to:
*The rights of individuals to privacy.
*Obligations on businesses to avoid infringing personal privacy.
*Substantial fines on businesses which fail to meet their obligations.


The CAPM assumes a straight-line relationship between the beta of a traded asset and the expected rate of return on the asset.


The GDPR became enforceable on 25 May 2018.


Expressed as a formula:


Re = Rf + beta x [Rm-Rf]
== See also ==
 
*[[Big data]]
''Where'':
*[[Brexit]]
 
*[[Data Protection Act]]
Re = return on security.
*[[Data Protection Authority]]
 
*[[Information Commissioner's Office]]
Rf = theoretical [[risk free rate of return]].
*[[Operational risk]]
 
*[[Regulation]]
Beta = relative market risk.
 
Rm = average expected rate of return on the market.
 
 
For example where:
 
Rf = theoretical risk free rate of return = 4%;
 
Beta = relative market risk = 1.2; and
 
Rm = average expected rate of return on the market = 9%.
 
 
Re = 4% + 1.2 x [9% - 4% = 5%]
 
= <u>10%.</u>
 
This investment requires an expected <u>rate of return</u> of 10%, higher than average rate of return on the market as a whole of only 9%, because its market <u>risk</u> (measured by Beta = 1.2) is greater than the average market risk of only 1.0.
 
 
Under the capital asset pricing model only the (undiversifiable) market risk of securities is rewarded with additional returns, because the model assumes that rational market participants have all fully diversified away all specific risk within their investment portfolios.
 
 
 
== Use of the CAPM to quantify cost of equity ==
 
When the CAPM is used to calculate an estimate of the cost of equity, it is conventionally expressed as:
 
Ke = Rf + beta x [Rm-Rf]


''Where'':


Ke = cost of equity.
===External link===


*[https://ico.org.uk/for-organisations/guide-to-the-general-data-protection-regulation-gdpr/ ICO's guidance on GDPR]


== See also ==
[[Category:Accounting,_tax_and_regulation]]
* [[Beta]]
[[Category:Technology]]
* [[Business risk]]
* [[Capital gain]]
* [[Cost of equity]]
* [[Equity beta]]
* [[Equity risk]]
* [[Equity risk premium]]
* [[Financial risk]]
* [[Market risk]]
* [[Market risk premium]]
* [[Modern Portfolio Theory]]
* [[Risk]]
* [[Security Market Line]]
* [[Specific risk]]
* [[Systematic risk]]
 
[[Category:Capital_Markets_and_Funding]]
[[Category:Business_Valuation]]

Revision as of 20:26, 31 May 2020

European Union - data protection.

(GDPR).

The General Data Protection Regulation 2016/679 of the EU relating to:

  • The rights of individuals to privacy.
  • Obligations on businesses to avoid infringing personal privacy.
  • Substantial fines on businesses which fail to meet their obligations.


The GDPR became enforceable on 25 May 2018.


See also


External link

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