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Heiko de Boer

Articles by Heiko de Boer

Austrian Economics and the Capital Asset Pricing Model: A Reconcilation?

August 6, 2022

The capital asset pricing model (CAPM) is an important investment model that describes how investors expect to be compensated for the time value of money and risk. The more risk you take, the more you want to be compensated. The formula is expressed as follows:
(A) Re = Rf + Beta * (Rm – Rf),
where Rf is risk-free return, Rm is the market return, and Beta is a risk element.
A pure risk-free rate of return does not exist. Any government could print money and “safely” return money. However, in that case, you probably get money with less purchasing power back. For that purchasing loss, a lender wants to be compensated.
In Human Action, Ludwig von Mises explains that an investor’s required return (Rr) consists of the originary interest rate (Ro), a compensation for

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