The Capital Asset Pricing Model (CAPM): The History of a Failed Revolutionary Idea in Finance?

17 Pages Posted: 30 Dec 2012

Date Written: January 2013

Abstract

The capital asset pricing model (CAPM) states that assets are priced commensurate with a trade‐off between undiversifiable risk and expectations of return. The model underpins the status of academic finance, as well as the belief that asset pricing is an appropriate subject for economic study. Notwithstanding, our findings imply that in adhering to the CAPM we are choosing to encounter the market on our own terms of rationality, rather than the market's.

Keywords: CAPM, Fama and French three‐factor model, Finance models

Suggested Citation

Dempsey, Michael J., The Capital Asset Pricing Model (CAPM): The History of a Failed Revolutionary Idea in Finance? (January 2013). Abacus, Vol. 49, pp. 7-23, 2013, Available at SSRN: https://ssrn.com/abstract=2194766 or http://dx.doi.org/10.1111/j.1467-6281.2012.00379.x

Michael J. Dempsey (Contact Author)

Ton Duc Thang University (TDTU) ( email )

District 7
Ho Chi Minh City, 3001
Vietnam

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