Abstract

http://ssrn.com/abstract=592167
 
 

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Have we Misinterpreted CAPM for 40 years? A Theoretical Proof


Stephen C. Fan


Fan Asset Management

September 15, 2004



Abstract:     
The validity of CAPM has been contingent on its security market line hypothesis, which asserts that higher-beta-risk assets should carry higher expected returns. Owing to a lack of empirical support for that hypothesis, many have declared CAPM dead. However, by surrogating assets' following-period ex-post returns as asset expected returns, most empirical studies have misinterpreted CAPM. This paper shows that higher-beta-risk assets will not necessarily generate higher or lower ex-post returns and that CAPM is such a common sense theory that one can literally observe its ex-post return paradigms at work in the daily capital marketplace.

Number of Pages in PDF File: 19

Keywords: GCAPM, CAPM, Beta, Modern Finance Theory, Market Efficiency

JEL Classification: G00, G10, G12, G14

working papers series





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Date posted: September 15, 2004  

Suggested Citation

Fan, Stephen C., Have we Misinterpreted CAPM for 40 years? A Theoretical Proof (September 15, 2004). Available at SSRN: http://ssrn.com/abstract=592167 or http://dx.doi.org/10.2139/ssrn.592167

Contact Information

Stephen C. Fan (Contact Author)
Fan Asset Management ( email )
201 San Antonio Circle, Suite 265
Mountain View, CA 94040
United States
650-559-0360 (Phone)
650-559-0363 (Fax)
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