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

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