The Investment CAPM

59 Pages Posted: 2 Oct 2017

See all articles by Lu Zhang, 张橹

Lu Zhang, 张橹

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

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Date Written: September 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 has succeeded in mounting an efficient markets counterrevolution to behavioural finance over the past 15 years.

Keywords: investment CAPM, consumption CAPM, CAPM, asset pricing anomalies, efficient markets, behavioural finance, aggregation, general equilibrium, joint‐hypothesis problem

Suggested Citation

Zhang, Lu, The Investment CAPM (September 2017). European Financial Management, Vol. 23, Issue 4, pp. 545-603, 2017. Available at SSRN: or

Lu Zhang (Contact Author)

Ohio State University - Fisher College of Business ( email )

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585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

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