lucasg85

smileygladhands Wrote:
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> R = a +B(Rm) + e
>
> B(Rm) would be beta x the expected return on the
> market
>
> a = the component of the security's return that is
> driven by firm-specific risk.
>
> E is just an error term


this is correct - this model is based on the relationship of the security to the market. B(Rm) is the security's return based on its relationship to the market. alpha (a) is the return that the security earns that is beyond its relationship to the market; its 'firm-specific' or 'unique' risk based return. e is the error term assuming a regression.