The Investment CAPM
72 Pages Posted: 19 Mar 2017 Last revised: 27 Mar 2017
Date Written: March 2017
A new class of Capital Asset Pricing Models (CAPM) arises from the first principle of real investment for individual firms. Conceptually as "causal"' as the consumption CAPM, yet empirically more tractable, the investment CAPM emerges as a leading asset pricing paradigm. Firms do a good job in aligning investment policies with costs of capital, and this alignment drives many empirical patterns that are anomalous in the consumption CAPM. Most important, integrating the anomalies literature in finance and accounting with neoclassical economics, the investment CAPM succeeds in mounting an efficient markets counterrevolution to behavioral finance in the past 15 years.
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