CRITICAL APPRAISAL OF FINANCIAL MODELS IN INVESTMENT DECISIONS & SECURITY TRADING

The current research aims to appraise financial models and analyse their usefulness in security trading. One of the main issues considered in this paper is the Capital Asset Pricing Model and the Arbitrage Pricing Theory, their major differences and implication in portfolio management. The results showed that these two theories, despite common ground, differ in terms of systematic risk measurement. However, both theories are used as a fundamental for portfolio management. The second issue analysed in the research is the logic of theBehavioural Finance Theory. The theory is a background for the application of technical analysis which is used to maximise investor's profit and make decisions for buying and selling. Finally, the third part of the study investigates the application of the yield curve in trading securities. As results demonstrated, the yield curve is applied not only in investment decision making processes, but in forecasting economic situations. Itprovides information on future inflation and interest rates and helps to determine if the fixed-interest security is under-priced or overpriced.