Why is CAPM not CRAP
Posted: 19 Jan 2015
Date Written: January 17, 2015
James Montier (1990) rechristened CAPM as CRAP (Completely Redundant Asset Pricing) in a research paper. No doubt behavioral experts had insights into the market behavior, but somewhere there is an “Academic Bias” that creeps in, making academicians be more positively biased about their body of work. Montier makes his case against CAPM assumptions by illustrating the low beta and high beta portfolio behavior. Is everything wrong with CAPM? Is it really redundant?
Keywords: CAPM, Fama and French, Divergence, Market Idealization
JEL Classification: G10
Suggested Citation: Suggested Citation