The Failure of the Capital Asset Pricing Model (CAPM): An Update and Discussion

13 Pages Posted: 28 Feb 2013

Date Written: August 26, 2012

Abstract

Dempsey (2013) highlights the empirical failure of the capital asset pricing model (CAPM). I study the beta, value and momentum anomalies using industry returns, with particular emphasis on the post-1993 period. Strong evidence of these effects is observed over the whole sample. However in recent years, while the value and momentum anomalies appear to continue, the beta anomaly appears to have weakened. Notwithstanding these results, I show that the value and momentum anomalies, and the value of beta, are largely irrelevant to the calculation of industry cost of equity

Keywords: beta effect, value effect, momentum effect, CAPM, cost of equity

JEL Classification: G12, G31

Suggested Citation

Bornholt, Graham N., The Failure of the Capital Asset Pricing Model (CAPM): An Update and Discussion (August 26, 2012). Available at SSRN: https://ssrn.com/abstract=2224400 or http://dx.doi.org/10.2139/ssrn.2224400

Graham N. Bornholt (Contact Author)

Griffith University ( email )

Gold Coast Campus
Gold Coast QLD, 4222
Australia

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