The Unintended Impact of Academic Research on Asset Returns: The CAPM Alpha

67 Pages Posted: 17 Oct 2017 Last revised: 27 Mar 2020

See all articles by Alex R. Horenstein

Alex R. Horenstein

University of Miami - School of Business Administration - Department of Economics

Date Written: March 26, 2020

Abstract

This paper explores a channel whereby asset-pricing anomalies can appear as investors alter portfolios according to findings in academic research. In particular, I find that assets with low realized CAPM Alphas outperform those with high ones, but this finding only appears after the CAPM’s publication in the 1960s. I find evidence consistent with the widespread application of the CAPM model generating incentives to tilt portfolios systematically away from low CAPM Alpha assets, causing such assets to be undervalued.

Keywords: capital asset pricing model, factor models, alpha, extrapolative beliefs

JEL Classification: G10, G12

Suggested Citation

Horenstein, Alex R., The Unintended Impact of Academic Research on Asset Returns: The CAPM Alpha (March 26, 2020). University of Miami Business School Research Paper No. 18-5. Available at SSRN: https://ssrn.com/abstract=3054718 or http://dx.doi.org/10.2139/ssrn.3054718

Alex R. Horenstein (Contact Author)

University of Miami - School of Business Administration - Department of Economics ( email )

P.O. Box 248126
Coral Gables, FL 33124-6550
United States

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