Editing Capital asset pricing model (section)

==Asset-specific required return==
The CAPM returns the asset-appropriate [[Required rate of return|required return]] or discount rate—i.e. the rate at which future cash flows produced by the asset should be discounted given that asset's relative riskiness.

Betas exceeding one signify more than average "riskiness"; betas below one indicate lower than average. Thus, a more risky stock will have a higher beta and will be discounted at a higher rate; less sensitive stocks will have lower betas and be discounted at a lower rate. Given the accepted concave [[utility function]], the CAPM is consistent with intuition—investors (should) require a higher return for holding a more risky asset.

Since beta reflects asset-specific sensitivity to non-diversifiable, i.e. market [[risk]], the market as a whole, by definition, has a beta of one. Stock market indices are frequently used as local proxies for the market—and in that case (by definition) have a beta of one. An investor in a large, diversified portfolio (such as a [[mutual fund]] designed to track the total market), therefore, expects performance in line with the market.