International CAPM (ICAPM) and Behavioral CAPM are two extensions of the traditional Capital Asset Pricing Model (CAPM) that consider additional factors in the estimation of expected returns and asset pricing.
- International CAPM (ICAPM): The ICAPM takes into account the effects of international factors on asset pricing. It recognizes that investors are not only concerned with the risks and returns of individual assets but also with the risks and returns associated with investing in different countries. The ICAPM incorporates additional risk factors such as exchange rate risk and country-specific risk premiums to account for the global nature of investments. It suggests that expected returns should be adjusted based on the exposure to these international risk factors.
- Behavioral CAPM: Behavioral CAPM incorporates behavioral finance principles into the traditional CAPM framework. It recognizes that investors are not always rational and may exhibit behavioral biases that affect their investment decisions. Behavioral CAPM considers factors such as investor sentiment, market mispricing, and psychological biases in estimating expected returns and asset pricing. It suggests that investor sentiment and psychological factors can influence market prices and expected returns, leading to deviations from the traditional CAPM predictions.