What are the main differences between a CAPM methodology and a factor-model methodology?

Answer

CAPM relies solely on the assumption of a single factor (market risk) usually obtained from listed equity markets to predict asset returns, while multi-factor models consider multiple variables like size, leverage, profit, investment, that are all relevant to private infrastructure.

Factor-models offer a more comprehensive analysis, capturing various risk sources for greater accuracy in estimating returns. Their ability to incorporate these additional factors makes them preferable, particularly in complex market environments. Thus, multi-factor models are always favoured over CAPM for their robustness and effectiveness in understanding the complexities of a market.