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

29 Pages Posted: 3 May 2013  

Michael J. Dempsey

RMIT University - School of Economics, Finance, and Marketing; Financial Research Network (FIRN)

Date Written: May 3, 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: Finance models, CAPM, Fama and French three-factor model

JEL Classification: G11, G12, G15

Suggested Citation

Dempsey, Michael J., The Capital Asset Pricing Model (CAPM): The History of a Failed Revolutionary Idea in Finance? (May 3, 2013). Available at SSRN: https://ssrn.com/abstract=2260197 or http://dx.doi.org/10.2139/ssrn.2260197

Michael J. Dempsey (Contact Author)

RMIT University - School of Economics, Finance, and Marketing ( email )

124 La Trobe Street
Melbourne, 3001
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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